AAII Sentiment Survey: Pessimism Continues To Fall

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


Optimism is climbing, but still remains below its historical average.

Pessimism is steadily falling, and remains within its historical range.

When asked their opinions of the recent market rebound, survey respondents had extremely mixed opinions.

The level of short-term pessimism among individual investors continues to pull back, according to the latest AAII Sentiment Survey. Bearish sentiment is now down by a cumulative 25 percentage points since early February. However, optimism still remains below average and neutral sentiment is at an unusually high level.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 3.8 percentage points to 33.8%. The increase was not large enough to prevent optimism from staying below its historical average of 39.0% for the 20th consecutive week and the 53rd out of the past 55 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 0.7 percentage points to 42.5%. This is the eighth consecutive week and the 60th in the past 64 weeks with a neutral sentiment reading above its historical average of 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 3.1 percentage points to 23.7%. The drop put pessimism at a new low for 2016, and just barely above the December 31, 2015, reading of 23.6%. Bearish sentiment has now been below its historical average of 30.0% for four consecutive weeks.

Though pessimism has declined considerably over the past nine weeks, it still remains within its typical historical range. More importantly, optimism continues to stay at below-average levels, with only one in three survey respondents currently describing their short-term outlook as "bullish."

Though some individual investors are encouraged by the market's rebound off of its February lows, sustained economic growth and still comparatively low energy prices, others fret about the possibility of further declines in stock prices, the pace of economic growth in the U.S., the pace of economic growth in China, tensions in the Middle East, the rate of earnings growth and prevailing valuations. Frustration with Washington politics also continues to be expressed.

This week's special question asked AAII members for their opinion about the recent rebound in stock prices that began in mid-February. There was no consensus. The largest group of respondents (22%) said that the rebound will not last. Several respondents in this group described the rebound as a temporary occurrence or a bear market rally. Slightly more than 14% of respondents said that the rally was a reaction to oversold conditions, excessive pessimism and short-term trading. Nearly 9% said that stock prices are tied to swings in commodity prices, especially oil. About 7% expect the stock market to remain volatile. Almost 5% of respondents expect stocks to rise more, while 4% attributed recent buying activity to the Federal Reserve and low interest rates. An additional 4% described the rebound as being normal or otherwise expected.

Here is a sampling of the responses:

  • "A bear market rally."
  • "With oil prices bottoming, one would expect a rebound."
  • "I expect it to drop and to continue to be up and down."
  • "I think it was a correction of the excessively negative sentiment that prevailed just after the first of the year."
  • "I think things will slowly improve, with periodic setbacks."
  • "I'm surprised at the extent of the rebound and the turnaround in oil prices."

This week's AAII Sentiment Survey results:

  • Bullish: 33.8%, up 3.8 percentage points
  • Neutral: 42.5%, down 0.7 percentage points
  • Bearish: 23.7%, down 3.1 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 a.m.) 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.