Pessimism among individual investors is above 30% for the first time since mid-April. Nonetheless, the percentage of bulls and bears is evenly split in the latest AAII Sentiment Survey.
Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 1.5 percentage points to 31.1%. Even with the rebound, this is the seventh consecutive week and the 18th time in the past 20 weeks that optimism is below its historical average of 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 2.7 percentage points to 37.8%. Even with the decline, neutral sentiment is above its historical average of 30.5% for the 30th consecutive week. This is the third-longest streak of consecutive weekly readings above 30.5% in the survey's history.
Bearish sentiment, expectations that stock prices will fall over the next six months, increased 1.2 percentage points to 31.1%. This is the first time pessimism is above its historical average of 30.5% in 15 weeks.
This is the first time there has been an equal percentage of bulls and bears in our survey since September 6, 2012.
Since reaching a short-term bottom of 21.3% on June 12, 2014, bearish sentiment has risen by a cumulative 9.8 percentage points. The rebound in pessimism is occurring as the S&P 500 has failed to consistently set new highs and geopolitical tensions have heightened. Some AAII members have concerns about prevailing valuations, events in the Middle East and Ukraine, the pace of economic growth and Washington politics. Other AAII members remain optimistic about sustained economic growth, the market's upward trend and the Federal Reserve's tapering of bond purchases.
This week's special question asked AAII members how important it is for a company to buy back its shares. Though the responses varied, one theme appeared regardless of a member's opinion about buybacks: Other uses of cash should be given priority before shares are repurchased. Nearly 17% of all respondents said dividends or growing the business should take precedence over buybacks.
In terms of how necessary it is for a company to buy back shares, 30% of respondents said share repurchases are not important. The second-largest group (23%) said stock buybacks are important or otherwise viewed them favorably. Several of these respondents said share repurchases show optimism on the part of management, while some others liked buybacks only if they reduced the number of shares outstanding or offset employee stock awards. Approximately 13% of respondents said their opinion depends on factors such as which other uses for cash are available or the reasons behind the buyback. Slightly more than 10% of respondents were against share buybacks. Some of them thought buybacks signal that there is not a better use for cash, while others wanted the money to go to raising dividends instead.
Here is a sampling of the responses:
- "Not important at all, though I would rather see a company use its money for dividends as opposed to buybacks."
- "Depends on what other things the company is doing. Generally, I look very favorably on companies that buy back their stock."
- "I believe it is a good thing if conditions such as valuation and free cash flow give merit."
- "They are a warning sign that management has not found better opportunities for growing the business."
- "Not important. I would rather see dividends or capital investment."
- "I am concerned that companies buy back stock when the price is high."
This week's AAII Sentiment Survey results:
- Bullish: 31.1%, up 1.5 percentage points
- Neutral: 37.8%, down 2.7 percentage points
- Bearish: 31.1%, up 1.2 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: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.