AAII Sentiment Survey: Optimism Rebounds for Second Week​

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Optimism rebounded for the second consecutive week, but remains below the levels registered at the start of the year, according to the latest AAII Sentiment Survey. Pessimism, meanwhile, fell to levels not seen since mid-January.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.1 percentage points to 42.2 percent, a six-week high. The historical average is 39.0 percent.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, rebounded by 2.5 percentage points to 35.0 percent. This is the seventh consecutive week with a neutral sentiment reading above its historical average of 30.5 percent.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 4.6 percentage points to 22.8 percent. This puts pessimism at a five-week low. Bearish sentiment is also below its historical average of 30.5 percent for the 20th time in the past 24 weeks.

The above-average reading for neutral sentiment extends a trend that has occurred over the past 12 months. Since February 28, 2013, neutral sentiment has been above its historical average 36 out of 52 weeks (69 percent of the time.) In comparison, bullish sentiment has been above its historical average 25 times and bearish sentiment has been above its historical average 18 times over the same period. The pattern suggests that despite the overall strong performance of the stock market, individual investor enthusiasm for stocks remains reserved.

The rebound in the S&P 500 after its recent pullback continues to alleviate concerns, at least temporarily, among individual investors about whether the market established a short-term top at the start of the year. Also helping to boost optimism are sustained earnings and economic growth, the Federal Reserve’s tapering of bond purchases and the debt ceiling agreement. Keeping some individual investors bearish are worries about the potential for a correction, elevated stock valuations, the pace of revenue growth and Washington politics.

This week’s special question asked AAII members if there are any economic or market catalysts they are looking for over the next few months. No consensus appeared among the answers. Approximately 20 percent of respondents said they are watching corporate revenue and earnings growth. Slightly more than 17 percent said the labor market is a key indicator, especially an acceleration in job growth or a decrease in the unemployment rate. Nearly 12 percent were focused on the general rate of economic expansion. Other respondents said they were monitoring interest rates, foreign economies and Federal Reserve policy.

This week’s AAII Sentiment Survey results

  • Bullish: 42.2 percent, up 2.1 percentage points
  • Neutral: 35.0 percent, up 2.5 percentage points
  • Bearish: 22.8 percent, down 4.6 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 here.