The proportion of individual investors expecting stock prices to be essentially unchanged over the next six months continues to be above the historical average, according to the latest AAII Sentiment Survey. Optimism increased, while pessimism declined.
Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 4.2 percentage points to 35.4%. Even with the increase, optimism remains below its historical average of 39.0% for the third consecutive week.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 2.4 percentage points to 37.9%. Neutral sentiment is now above its historical average of 30.5% for the 13th consecutive week.
Bearish sentiment, expectations that stock prices will fall over the next six months, declined 1.8 percentage points to 26.8%. This is the fourth time in five weeks that pessimism has stayed within a 0.7 percentage-point range. It is also the eighth consecutive week and the 26th time in 30 weeks with a bearish sentiment reading below the historical average of 30.5%.
The current streak of consecutive weeks with above-average neutral sentiment is the longest since 1999. Neutral sentiment stayed above its historical average for 15 consecutive weeks between July 29, 1999 and November 4, 1999.
All three indicators are within their typical ranges. Keeping some AAII members encouraged about the short-term outlook for equities 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 what they considered to be the most important characteristic for judging a stock's potential upside. Responses varied, though profits were cited by the largest number of respondents (37%). These members not only wanted to see earnings, but expressed a preference for earnings growth and earnings exceeding expectations. Valuation was the second most popular characteristic, named by 10% of respondents. Good management and positive cash flow tied for third with each named by 7% of respondents.
This week's AAII Sentiment Survey results:
- Bullish: 35.4%, up 4.2 percentage points
- Neutral: 37.9%, down 2.4 percentage points
- Bearish: 26.8%, down 1.8 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.