Optimism about the short-term direction of stock prices among individual investors is back above its historical average, according to the latest AAII Sentiment Survey. Neutral sentiment rose as well, while pessimism dropped.
Bullish sentiment, expectations that stock prices will rise over the next six months, rose by 7.0 percentage points to 44.2%. The increase puts optimism above its historical average of 39.0% for the 22nd time in the past 25 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.4 percentage points to 33.4%. This is the second-highest reading since early October. The historical average is 30.5%.
Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 8.4 percentage points to 22.4%. The drop puts pessimism back near the lower the end of its typical range. Bearish sentiment has been below its historical average of 30.5% for 14 out of the past 15 weeks.
Neutral sentiment is now above its historical average for four consecutive weeks. This is the longest such streak since neutral sentiment stayed above average for 32 consecutive weeks between January 9 and August 14, 2014.
Keeping AAII members encouraged is the overall upward momentum of stock prices, falling energy prices, earnings growth and sustained economic expansion. Causing other members to be cautious or pessimistic are geopolitical events, the impact of falling oil prices on energy stocks, a sense that prevailing valuations for stocks are too high, the pace of economic growth and worries that a large decline in stock prices could occur.
This week's special question asked AAII members what type of influence the direction of stock prices has on their six-month market outlook. More than a third (36%) said price movement does not or only minimally influences their short-term outlook. Several of these respondents described themselves as buy-and-hold investors. About 20% said other factors, including the economy and valuations, influence their outlooks. Nearly 18% said the direction of stock prices either significantly or partially influences their short-term outlook.
Here is a sampling of the responses:
· "Not very much. I'm more influenced by macro-economic factors."
· "Not much. Buy good stocks and you'll get good results."
· "None. I'm a buy and hold investor."
· "Significant. I believe prices are a relevant input."
· "Some consideration, but not the only factor."
This week's AAII Sentiment Survey results:
· Bullish: 44.2%, up 7.0 percentage points
· Neutral: 33.4%, up 1.4 percentage points
· Bearish: 22.4%, down 8.4 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.
