Optimism among individual investors rebounded strongly, but still remains below average in the latest AAII Sentiment Survey. Neutral sentiment rose back above 39%, while pessimism fell back below its historical average.
Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 7.3 percentage points to 34.5%. This is the largest weekly change and the biggest increase in optimism since a 12.3 jump on February 13, 2014. Nonetheless, optimism is below its historical average of 39.0% for the sixth consecutive week.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 0.9 percentage points to 39.5%. This is a four-week high. It's also the 16th consecutive week neutral sentiment is above its historical average of 30.5%.
Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 8.2 percentage points to 26.0%. This puts pessimism below its historical average of 30.5% for the first time in three weeks.
The current streak of below-average bullish sentiment readings is the longest since a six-week stretch between March 28 and May 2, 2013. Neutral sentiment is above its historical average for the longest consecutive period since a 24-week stretch between January 28, 1999 and July 8, 1999. Bearish sentiment has not been above average for three consecutive weeks since August 22 through September 5, 2013. This week's drop in pessimism ended a two-week stretch of above-average readings.
Neutral sentiment is back to an unusually high level, or more than one standard deviation above its historical average. Though the S&P 500 has bounced back and now sits close to its record high, uncertainty remains about whether a short-term market top has formed. Valuations are also playing a role and some individual investors may be waiting to see how first-quarter earnings look. Keeping some individual investors optimistic is the market's resilience, economic expansion, the Federal Reserve's tapering of bond purchases and low interest rates. Keeping some individual investors pessimistic is the pace of revenue growth, the slow rate of economic expansion and Washington politics.
This week's special question asked AAII members about their perception of the current state of the housing market. Responses were mixed, though 45% described the housing market as improving. About half of this group, or 21% of all respondents, said the recovery is slow or slowing. More than 7% of all respondents said the recovery is mixed with certain geographic areas or price segments doing better than others. Another approximate 7% described housing prices as being or getting expensive. Slightly less than 7% said the housing market was weak or weakening, while 6% described housing as stable.
Here is a sampling of the responses:
- "Much improved, but a ways to go."
- "Housing prices are moving up and sales activity is increasing."
- "Slowly getting better, depending on the market location."
- "It's bubbly in a few areas, but not nationally."
- "Sellers are inching up to prices they commanded years ago, but income has stagnated for many buyers. Not a great scenario."
This week's AAII Sentiment Survey results:
- Bullish: 34.5%, up 7.3 percentage points
- Neutral: 39.5%, up 0.9 percentage points
- Bearish: 26.0%, down 8.2 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.