Bullish sentiment topped 50% for the first time since December 26, 2013, in the latest AAII Sentiment Survey. Bearish sentiment, meanwhile, continued to drop, falling below 20% for the first time this year.
Bullish sentiment, expectations that stock prices will rise over the next six months, rose 5.8 percentage points to 51.9%. This is only the fourth time optimism has exceeded 50% since February 2011. It is also the first time bullish sentiment has exceeded its historical average of 39.0% for three consecutive weeks or more since March 2014.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.4 percentage points to 28.8%. This is the lowest neutral sentiment has been since January 2, 2014.
Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 4.4 points to 19.2%. Pessimism was last lower on December 26, 2013 (18.5%). The drop keeps bearish sentiment below its historical average of 30.5% for the 39th time in the past 46 weeks.
At current levels, optimism is unusually high and pessimism is unusually low (more than one standard deviation away from their respective historical averages). Since our survey began in 1987, the S&P 500 has typically experienced weaker than normal returns whenever bullish sentiment is unusually high or bearish sentiment is unusually low. The median six-month returns for the large-cap index have been 3.8% following unusually high optimism and 4.5% following unusually low pessimism. The median six-month return over the survey's entire history is 5.2%.
Bullish sentiment has risen by a cumulative 21.0 percentage points over the past two weeks, while bearish sentiment has dropped by a cumulative 19.0 percentage points. The reversal comes as the S&P 500 rebounded off of its short-term lows and broke above 2,000. This rebound has also alleviated fears among some individual investors about a possible correction having started earlier this month. Other factors contributing to the optimistic stance are second-quarter earnings, sustained economic growth and the Federal Reserve's tapering of bond purchases. Keeping some individual investors pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.
This week's special question asked AAII members how, if at all, the current bull market is impacting their attitude towards U.S. stocks. Answers were varied. About 36% of respondents said the current length of the bull market is having no impact. Some of these respondents said they were more focused on valuation measures, some are more focused on Federal Reserve policy and others simply said they are focused on the long term. About 18% of respondents indicated they are more optimistic because of the bull market's resiliency, while 12% said they are more pessimistic because of it.
Here is a sampling of the responses:
- "Not much, because I invest for the long term."
- "I am more optimistic that the market has more upside before hitting a correction."
- "I'm cautiously optimistic, but will be paying close attention to the Federal Reserve and interest rates."
- "I'm definitely more cautious; waiting on pullbacks and analyzing stocks more thoroughly."
- "It's harder to pick undervalued stocks."
- "I think we're due for a correction, but the long-term outlook still seems positive."
- "It's making retirement a lot easier."
This week's AAII Sentiment Survey results:
- Bullish: 51.9%, up 5.8 percentage points
- Neutral: 28.8%, down 1.4 percentage points
- Bearish: 19.2%, down 4.4 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.