AAII Sentiment Survey: Optimism Back Near Historic Lows

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

Summary

Optimism dipped below 20% for just the 30th time in the 29-year history of this survey.

In the meantime, neutral sentiment remained above 40% for the 10th week in a row.

Nearly half of respondents see growth as slow, and even more are generally dissatisfied with it.

Optimism for a short-term rise in stock prices is below 20% for just the 30th time in the 29-year history of the AAII Sentiment Survey. At the same time, more than one in three individual investors now has a downbeat view about the short-term direction of stocks.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.1 percentage points to 19.3%. This is the lowest level of optimism recorded by our survey since February 10, 2016 (19.2%). It is also the 28th consecutive week and the 61st out of the past 63 weeks that bullish sentiment has been below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.7 percentage points to 46.6%. The rise keeps neutral sentiment above 40% for a 10th consecutive week. It also keeps neutral sentiment above its historical average of 31% for a 16th consecutive week and the 68th out of the past 72 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.8 percentage points to 34.1%. Pessimism was last higher on February 17, 2016 (37.8%). The historical average is 30%.

As noted above, there have only been 30 weeks over the survey's entire history with a bullish sentiment reading below 20%. Since 1990 optimism has only dipped below 20% nine times, with this year accounting for three of those occurrences (January 13, February 10 and this week). Such low levels of optimism have been historically followed by rising stock prices: The S&P 500 has averaged a 12.6% 26-week return following the 27 occurrences prior to year. The sole exception was March 10, 2008, when the S&P 500 fell by 11.7% over the following 26 weeks. A listing of all 30 sub-20% bullish sentiment readings and the S&P 500's subsequent 26- and 52-week returns can be seen on the AAII Blog.

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 comparatively low energy prices.

This week's special question asked AAII members for their opinion about the current pace of economic growth. Nearly half of the respondents (49%) described growth as slow and an additional 22% described growth as poor or inadequate. Just 11% said growth was either good or as good as could be expected given the prevailing political and/or macroeconomic backdrop.

Here is a sampling of the responses:

  • "Far too sluggish."
  • "It's still slow and won't change until wages start to increase across the board."
  • "Pace of economic growth is excessively slow. Snails are faster."
  • "Slow due to uncertainty about regulations, the election, Brexit and China."
  • "Too slow, but steady; needs tax reform and fiscal stimulus from Congress."

This week's AAII Sentiment Survey results:

  • Bullish: 19.3%, down 1.1 percentage points
  • Neutral: 46.6%, down 1.7 percentage points
  • Bearish: 34.1%, up 2.8 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 at http://www.aaii.com/sentimentsurvey.

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.