Neutral sentiment is at highest level since December 22, 2011 in the latest AAII Sentiment Survey. The rise in neutral sentiment is occurring as both short-term optimism and pessimism are falling among individual investors.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.9 percentage points to 35.5%. This is the third consecutive weekly decline. It also puts optimism at its lowest level in a month. The historical average is 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.4 percentage points to 36.3%. As noted above, this is the highest neutral sentiment has been in more than 16 months. It is also the first time neutral sentiment has been above its historical average of 30.5% on consecutive weeks since October 4 and October 11, 2012.
Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.5 percentage points to 28.2%. This is a nine-week low for pessimism. The historical average is 30.5%.
The last time both bullish and bearish sentiment were below their respective historical averages on consecutive weeks was August 2 through August 16, 2012. The second-most-recent occurrence was on February 25 and March 4, 2010.
The declines in optimism and pessimism are not significant as both bullish and bearish sentiment remain close to their historical averages. While the major indexes continue to trade near record or multi-year highs, AAII members are mixed about what the next six months will bring in terms of market direction. Some members are encouraged by this year's gains, while others fret that stocks are overbought and are due for a pullback. Also impacting sentiment are mixed views about the pace of economic growth and ongoing frustration with Washington.
This week's special question asked AAII members which industries and sectors they like right now. Energy, including master limited partnerships, received the most votes, listed by 30% of respondents. Health care came in second with 23% of respondents favoring the sector, technology was a close third (21%) and financials came in fourth (14%). When we asked the same question last September, AAII members favored energy, health care, commodities and technology.
This week's AAII Sentiment Survey results:
- Bullish: 35.5%, down 2.9 percentage points
- Neutral: 36.3%, up 3.4 percentage points
- Bearish: 28.2%, down 0.5 percentage points
- Bullish: 39.0%
- Neutral: 30.6%
- Bearish: 30.6%
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
Charles Rotblut. CFA is a Vice President with the American Association of Individual Investors and editor of the AAII Journal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.