AAII Sentiment Survey: Pessimism Rises To An 8-Week High

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


Pessimism is at its highest level in nearly two months.

Bullish sentiment fell 6.0 percentage points, reversing last week’s rise.

Optimism is at a four-week low.

Pessimism among individual investors about the short-term direction of stock prices is at its highest level in nearly two months, according to the latest AAII Sentiment Survey. Neutral sentiment is also higher, while optimism is lower.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.0 percentage points to 27.4%. The drop more than reverses last week's rise and puts optimism at a four-week low. The drop also keeps optimism below its historical average of 39.0% for the 25th consecutive week and the 58th out of the past 60 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.4 percentage points to 44.0%. The rise keeps neutral sentiment above 40% for a seventh consecutive week. This week's increase also keeps neutral sentiment above its historical average of 31.0% for the 13th consecutive week and the 65th out of the past 69 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 4.7 percentage points to 28.6%. Pessimism was last higher on March 2, 2016 (29.2%). This week's increase was not large enough to prevent pessimism from staying below its historical average of 30.0% for a ninth consecutive week.

The survey period is Thursday through Wednesday. As such, most of the responses to this week's survey were logged before yesterday's Federal Open Market Committee statement was released.

Even though the S&P 500 index is trading near its record high and the smaller-cap Russell 2000 index has rebounded as well, many individual investors remain cautious. Fewer than one out of three survey respondents have described their short-term outlook for stocks as bullish during 22 out of the past 25 weeks. As stated last week, when the S&P 500 set its last record closing high on May 21, 2015, just 25.2% of surveyed individual investors described their outlook as bullish.

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 sustained domestic economic growth, expected corporate earnings growth and still-low energy prices.

This week's special question asked AAII members whether it makes sense for the S&P 500 to be trading near its record high. Respondents were divided: 38% said it makes sense and 36% said it doesn't. The low levels of interest rates and bond yields were primarily cited as the reasons why it makes sense for the S&P 500 to be trading at current levels. The lack of adequate earnings growth and stock valuations were the primary reasons given for why the large-cap index shouldn't be trading at current levels.

Here is a sampling of the responses:

· "It makes sense at the current level of interest rates."

· "It does. Interest rates are at historically low levels and the economy is doing reasonably well."

· "No, because earnings continue to decline, as do revenues."

· "It seems too high compared to estimated corporate earnings."

· "Only in this alternate universe with ridiculously low interest rates could the S&P be where it is."

This week's AAII Sentiment Survey

· Bullish: 27.4%, down 6.0 percentage points

· Neutral: 44.0%, up 1.4 percentage points

· Bearish: 28.6%, up 4.7 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.). The survey and its results are available online here.

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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.