AAII Sentiment Survey: Neutral Sentiment Jumps To New 2016 High

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

Summary

Optimism fell below 30% for the first time in six weeks, while neutral sentiment leapt to another 2016 high.

Pessimism increased slightly, ending a 25 percentage point slide.

The presidential election and domestic economy were the top factors influencing respondents' outlook for stocks.

The percentage of individual investors describing their six-month outlook for stocks as "neutral" is at its highest level of the year, according to the latest AAII Sentiment Survey. The rise occurred as optimism fell below 30% for the first time in six weeks and pessimism rebounded.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.6 percentage points to 27.2%. Optimism was last below 30% on February 17 (27.6%). The drop keeps bullish sentiment below its historical average of 39.0% for the 21st consecutive week and the 54th out of the past 56 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 4.6 percentage points to 47.1%. Neutral sentiment was last higher on December 30, 2015 (51.3%). This is the ninth consecutive week and the 61st out of the past 65 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, rose 2.0 percentage points to 25.8%. The increase ends a six-week, 25-percentage-point slide. Nonetheless, pessimism is below its historical average of 30.0% for a fifth consecutive week.

Optimism is back at an unusually low level (more than one standard deviation below its historical average). At the same time, neutral sentiment remains at an unusually high level. Such readings have historically been followed by better-than-average gains in the S&P 500, though there is no guarantee that history will repeat.

In the backdrop of this week's survey period, there was a bit of volatility in the major stock indexes, in addition to the headlines relating to the March 22 terrorist attack in Belgium. The presidential election is also weighing on individual investor sentiment, as the responses to this week's special question show.

Giving individual investors cause for concern is the slow pace of U.S. economic growth and uncertain global economic growth, terrorism and global unrest, lackluster corporate earnings and the prevailing level of valuations. Some AAII members, however, are encouraged by the sustained domestic economic growth, expected corporate earnings growth and still-low energy prices.

This week's special question asked AAII members what factors are currently most influencing their six-month outlook for stocks. More than one out every four respondents (27%) mentioned the presidential election. (One member described it as "the craziest presidential election in my lifetime.") The domestic economy was second, listed both positively and negatively by 21% of respondents. An additional 13% pointed to global economic weakness and uncertainty, particularly in China and Europe. Nearly 17% cited the Federal Reserve and potential interest rate hikes. Slightly more than 15% said that oil and commodity prices are influencing their outlook for stock prices. Terrorism and global unrest tied with earnings, with each named by about 14% of respondents. Less than 6% of AAII members mentioned prevailing valuations. The majority of respondents listed more than one factor influencing their outlook.

This week's AAII Sentiment Survey results:

  • Bullish: 27.2%, down 6.6 percentage points
  • Neutral: 47.1%, up 4.6 percentage points
  • Bearish: 25.8%, up 2.0 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.