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Summary

  • Bullish sentiment, expectations that stock prices will rise over the next six months, fell 7.2 percentage points to 44.7%.
  • Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 4.7 points to 24.0%.
  • Optimism is still nearly six percentage points above its historical average and pessimism is more than six percentage points below its historical average.

Optimism among individual investors about the short-term direction of the stock market pulled back, but remained above average, in the latest AAII Sentiment Survey. Bullish sentiment is now at a three-week low, while both neutral sentiment and bearish sentiment are at three-week highs.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 7.2 percentage points to 44.7%. Even with the drop, optimism remains above its historical average of 39.0% for the fourth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 2.5 percentage points to 31.4%. The increase puts neutral sentiment back above its historical average of 30.5% for the first time in three weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 4.7 points to 24.0%. The increase was not large enough to keep pessimism from staying below its historical average of 30.5% for the 41st time in the past 47 weeks.

A reversion to the mean occurred this week, with bullish sentiment pulling back from an unusually high level and bearish sentiment rebounding from an unusually low level. Even with the shift, it is important to realize that optimism is still nearly six percentage points above its historical average and pessimism is more than six percentage points below its historical average.

Keeping many individual investors optimistic about the short-term direction of stock prices are the S&P 500's rise above 2,000, earnings growth, sustained economic expansion and the Federal Reserve's tapering of bond purchases. Causing other AAII members to be 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 comfortable they are with the valuations of the stocks they currently hold. Half of all respondents said they are comfortable with current valuations. Some of these respondents described valuations as being elevated, but not too high. Others described valuations as being acceptable. An additional 5% of respondents said they were very comfortable with current valuations. At the other end of the spectrum, more than 18% of respondents described themselves as not being comfortable. Many of these respondents said valuations are too high.

Here is sampling of the responses:

  • "Valuations are at the high end of normal, but overall, I feel comfortable with where valuations are."
  • "I'm comfortable only because I'm buying quality companies."
  • "I think valuations are too high."
  • "I'm not comfortable, but there are not good alternatives."
  • "I am very comfortable as I believe the stocks I'm investing in are fairly valued, if not undervalued."

This week's AAII Sentiment Survey results:

  • Bullish: 44.7%, down 7.2 percentage points
  • Neutral: 31.4%, up 2.5 percentage points
  • Bearish: 24.0%, up 4.7 percentage points

Historical averages:

  • 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.

Source: AAII Sentiment Survey: Optimism Pulls Back From Recent High