Pessimism among individual investors jumped to its highest level in nearly a year in the latest AAII Sentiment Survey. The spike in expectations for a short-term drop comes as neutral sentiment fell to levels not seen since January.
Bullish sentiment, expectations that stock prices will rise over the next six months, declined by 0.2 percentage points to 30.9%. During the past three weeks, optimism has fluctuated within a 1.5 percentage-point range. This week's reading keeps bullish sentiment below its historical average of 39.0% for the eighth consecutive week and the 19th time in the past 21 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 6.9 percentage points to 30.9%. Neutral sentiment was last lower on January 2, 2014 (27.6%). Even with the drop, neutral sentiment remains above its historical average of 30.5% for the 31st 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, spiked by 7.1 percentage points to 38.2%. This is the largest amount of pessimism recorded in our survey since August 22, 2013. It is also the first time since April of this year with a bearish sentiment reading above the historical average of 30.5% for two consecutive weeks.
Bearish sentiment is near, but not at, the upper end of its typical historical range. The spike in pessimism follows the S&P 500's worst week in nearly two years and suggests some investors believe the market's upward momentum is being interrupted. Also playing a role in the backdrop are concerns about prevailing valuations, heightened geopolitical tensions, slow economic growth and frustration with Washington politics.
Notably, bullish sentiment is still within its typical historical range. Keeping some AAII members hopeful about the short-term direction of the market is economic growth, the market's overall upward trend, and the Federal Reserve's tapering of bond purchases.
This week's special question asked AAII members for their opinion about the current pace of economic growth. Approximately 20% of respondents described the rate of growth as being slow. An additional 12% said growth is occurring at too slow of a pace. Just under 13% described the rate of expansion as being dismal, anemic or weak. About 10% described the economy as steadily expanding, though many clarified their responses by describing the pace as slow. Nearly 8% thought the economy is getting stronger.
Here is a sampling of the responses:
- "Economic growth is slower than we need, and it is uneven."
- "I think it is better, but there is still not enough job growth."
- "It may not be as strong as some people want, but it is steady, with no end in sight."
- "It is improving after a long struggle. I think it will continue to improve."
- "Slow, sluggish and subpar for a recovery."
- "Very tepid and not likely to improve."
This week's AAII Sentiment Survey results:
- Bullish: 30.9%, down 0.2 percentage points
- Neutral: 30.9%, down 6.9 percentage points
- Bearish: 38.2%, up 7.1 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: 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.