New Large Cap Record Highs Keep Investors Optimistic

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Neutral sentiment rose back above average as pessimism fell to its lowest level in five weeks, according to the latest AAII Sentiment Survey. Optimism declined modestly. Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.4 percentage points to 41.3 percent. This is the eighth time in the past 10 weeks that optimism is above 40 percent. The historical average is 39 percent.

Expectations that stock prices will stay essentially unchanged, or neutral sentiment, rose 3.9 percentage points to 33.7 percent. Since falling to 24.4 percent two weeks ago, neutral sentiment has rebounded by a cumulative 9.3 percentage points. The historical average is 30.5 percent.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 2.5 percentage points to 25.0 percent. This is a five-week low. It is also the ninth consecutive week and the 11th out of the past 13 weeks with a bearish sentiment reading below the historical average of 30.5 percent. The market’s lackluster start to December has dampened optimism a bit as shown by bullish sentiment falling by a cumulative 6.0 percentage points since Thanksgiving.

Nonetheless, the level of optimism remains above its historical average as many individual investors continue to be encouraged by the new record highs established by the large cap indexes along with earnings growth and economic growth. Tempering the level of optimism are concerns about the pace of economic growth, elevated stock valuations, and the lack of a long-term fiscal solution.

This week’s special question asked AAII members if they are holding onto stocks they consider to be overvalued or overbought. Responses were split with 45 percent of respondents saying no, they are not, and 38 percent saying yes, they are. Among the reasons given for holding onto a stock considered to be pricey are that it is a long-term investment, expectations for the price to continue rising, the dividend yield and a desire to avoid or defer capital gains taxes.

Response Sampling

  • “No. If I thought they were overvalued, I would sell.”
  • “No. I sold the stocks two weeks ago that I thought were overvalued.”
  • “I like to let my winners run.”
  • “Yes. Because overbought conditions can last for a long time.”
  • “I think the market will continue upward and I don’t want to pay capital gains taxes.”

This week’s AAII Sentiment Survey Results

  • Bullish: 41.3 percent, down 1.4 percentage points
  • Neutral: 33.7 percent, up 3.9 percentage points
  • Bearish: 25.0 percent, down 2.5 percentage points

Historical Averages

  • Bullish: 39.0 percent
  • Neutral: 30.5 percent
  • Bearish: 30.5 percent

Charles Rotblut is the author of the new book Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio. The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at

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