AAII Sentiment Survey: Neutral Sentiment Jumps As Pessimism Declines

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Includes: DIA, IVV, SPY, VOO, VTI
by: AAII

Summary

Fewer than three out of 10 investors are expecting gains in the stock market.

Neutral sentiment has not been below its historical average for three consecutive weeks since November 2014.

One in three members focused on large-cap, value-oriented and dividend-paying stocks.

Neutral sentiment rebounded back above its historical average as pessimism continued to pull back from its recent high in the latest AAII Sentiment Survey. Optimism declined, continuing the streak of fewer than three out of 10 investors expecting gains in the stock market.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined by 2.2 percentage points to 27.5%. The drop keeps optimism below 30% for a 10th consecutive week and below its historical average of 39.0% for the 46th out of the past 48 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped by 7.5 percentage points to 37.7%. This is a four-week high. The historical average is 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 5.2 percentage points to 34.7%. Since spiking to 48.7% two weeks ago, pessimism has pulled back by a cumulative 14.0 percentage points. Nonetheless, bearish sentiment is above its historical average of 30.0% for a fifth consecutive week and the seventh time in eight weeks.

The rebound in neutral sentiment occurred as the stock market has shown signs of stabilizing, at least temporarily. This week's rebound continues an ongoing trend - since November 2014, neutral sentiment has never been below its historical average for three consecutive weeks.

Both this survey and our monthly Asset Allocation Survey shows a split in the reactions of individual investors to the ongoing correction. Some AAII members have increased their cash allocations in anticipation of further declines in stock prices. (Contributing to the pessimism are the slowing pace of economic growth in China, tensions in the Middle East, the pace of economic growth in the U.S., the rate of earnings growth and prevailing valuations.) Others view the downward volatility as a buying opportunity or are looking for the opportunity to buy stocks at discounted prices. There also are many individual investors who have not made any changes to their portfolios.

This week's special question asked AAII members how, if at all, they have recently adjusted their stock investing strategy. More than one-third of respondents (35%) said they are focusing on large-cap, income producing and/or value-oriented stocks. Many of these respondents specifically said that they are primarily seeking dividend-paying stocks. About 14% of respondents said that they have become more conservative, particularly by increasing their cash allocations. More than 6% of those responding are buying small-cap stocks. Nearly 30% of respondents said that they have not made any changes, however.

Here is a sampling of the responses:

  • "Focusing on large-cap, undervalued stocks for the next six months."
  • "Primarily large-cap stocks for the dividends."
  • "I remain fully invested and except for possibly minor rebalancing, I won't be doing anything."
  • "Holding more cash for good opportunities."
  • "Gone to cash for the time being."

This week's AAII Sentiment Survey results:

  • Bullish: 27.5%, down 2.2 percentage points
  • Neutral: 37.7%, up 7.5 percentage points
  • Bearish: 34.7%, down 5.2 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

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 am.) to Wednesday (11:59 p.m.).

Want to weigh in? Take the survey yourself and see results online here.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.