Neutral sentiment jumped its highest level since 2005 in the latest AAII Sentiment Survey. Optimism fell and pessimism rose to levels not seen since early February.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.6 percentage points to 31.2%. Optimism was last lower on February 6, 2014. It is also the second consecutive week with a bullish sentiment reading below its historical average of 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged, rose 3.2 percentage points to 40.2%. This is the highest level of neutral sentiment since April 14, 2005. It is also the 12th consecutive week with neutral sentiment above its historical average of 30.5%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.5 percentage points to 28.6%. This is the highest pessimism has been since February 6, 2014. Even with the increase, bearish sentiment remains below its historical average of 30.5% for the seventh consecutive week and the 25th time in 29 weeks.
Neutral sentiment is now at an unusually high level-more than one standard deviation above its historical average. There have only been 174 weeks with higher readings, and just 13 of those have occurred after January 1, 2000.
Bullish sentiment has fallen by a cumulative 10.1 percentage points during the past two weeks. Even with this steep drop, optimism remains within its typical range (within one standard deviation of the historical average). The recent decline in stock prices appears to continue be moving investors from the bullish camp into the neutral camp. It is important to note, however, that bearish sentiment is only two percentage points higher than where it was at the start of this month.
Keeping some AAII members encouraged is the overall upward momentum of stock prices, earnings growth, economic expansion, the Federal Reserve's tapering of bond purchases and low interest rates. Other AAII members are fretting about elevated stock valuations, the pace of revenue growth, the slow rate of economic expansion and Washington politics.
This week's special question asked AAII members how much leeway they are willing to give companies for blaming first-quarter weakness on the winter weather. Half of all respondents said they weren't going to give any leeway or only very little. Approximately 21% said the answer depends on the company or the industry, while another 21% said they are willing to give companies some or a little leeway. Fewer than 8% of all respondents are willing to give companies a lot of leeway to blame the first quarter's winter storms.
Here is a sampling of the responses:
•"You can only blame the weather for so long."
•"Very little and only with specific circumstances."
•"Not much leeway. Bad weather does have some effect, but bad weather occurs somewhere all the time."
•"I'm accepting that excuse for one quarter. Then, second quarter results have to be better."
•"Only when it pertains to companies that may be directly affected by the cold and snow."
•"Winter has been horrible for many of us, more so than in the past. I'll give a lot of blame to the weather."
This week's AAII Sentiment Survey results:
•Bullish: 31.2%, down 5.6 percentage points
•Neutral: 40.2%, up 3.2 percentage points
•Bearish: 28.6%, up 2.5 percentage points
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: http://www.aaii.com/sentimentsurvey.
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.