Bullish sentiment rebounded strongly in the latest AAII Sentiment Survey. The 12.3 percentage point rise was the largest since a 12.9 percentage point rebound on November 28, 2013. Accompanying the increase in optimism was the largest weekly drop in pessimism since August 29, 2013.
Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 12.3 percentage points to 40.1%. This is a five-week high. The historical average is 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged, declined 3.2 percentage points to 32.5%. This is a five-week low. Even with the decline, neutral sentiment remains above its historical average of 30.5% for the sixth consecutive week.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 9.1 percentage points to 27.3%. The drop reverses two consecutive weeks with readings above 30% and puts pessimism below its historical average for the 19th time in the past 23 weeks.
Though the proportion of bulls increased significantly in this week's survey, it's worth noting that optimism remains below the levels registered at the start of this year. Furthermore, the current six-week streak of consecutive above-average neutral sentiment readings is the longest since last summer's 12-week streak (May 30 through August 15, 2013).
The rebound in the S&P 500 after its recent pullback has likely alleviated concerns, at least temporarily, among individual investors about whether the market established a short-term top at the start of the year and whether a correction is looming. Sustained earnings and economic growth, Federal Reserve Chairman Janet Yellen's intent to continue tapering bond purchases and the debt ceiling agreement are also contributing to the optimistic six-month outlook. Keeping some individual investors bearish are worries that the market's weakness is not over, elevated stock valuations, the pace of revenue growth and Washington politics.
This week's special question asked AAII members how fourth-quarter earnings have impacted their six-month outlook for stock prices. Approximately 46% of respondents said the recent earnings reports did not alter their short-term outlook. Several said this was because earnings were largely met their expectations, while some others said other factors are having a bigger influence on their outlook. About 11% said they are more bearish because of earnings and an additional 9% said they have tempered their outlook after looking at the profit figures. Some of these respondents cited disappointing reports or a lack of revenue growth. A small group, 6% of respondents, said earnings season has made them more bullish.
Here is a sampling of the responses:
- "Recent earnings are generally as expected."
- "They have not. Other factors took precedent."
- "Yes. Many companies I follow had slightly improved earnings."
- "They have added to other news that together has reduced my outlook from positive to neutral."
- "Earnings disappointments and expectations for lower earnings have caused me to pull back my exposure to the stock market."
This week's AAII Sentiment Survey results:
- Bullish: 40.1%, up 12.3 percentage points
- Neutral: 32.5%, down 3.2 percentage points
- Bearish: 27.3%, down 9.1 percentage points
- Bullish: 39.0%
- Neutral: 30.5%
- Bearish: 30.5%
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.
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.