AAII Sentiment Survey: Pessimism Jumps To A 4-Month High

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


Pessimism is at its highest level and neutral sentiment is at its lowest level since February 17.

Bullish sentiment has been below its historical average for the 32nd consecutive week and the 65th out of the past 67 weeks.

More than four in 10 respondents have a stock outlook relatively unaffected by oil prices.

Pessimism among individual investors is at its highest level and neutral sentiment is at its lowest level since February, according to the latest AAII Sentiment Survey. Optimism remains at an unusually low level.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 2.5 percentage points to 25.3%. This is the seventh time in the past eight weeks that fewer than three out of 10 survey respondents are optimistic. It is also the 32nd consecutive week and the 65th out of the past 67 weeks with bullish sentiment below its historical average of 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 7.2 percentage points to 37.2%. Neutral sentiment was last lower on February 17, 2016 (34.6%). Even with the big drop, neutral sentiment is above its historical average of 31.0% for the 20th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, surged 9.7 percentage points to 37.5%. Pessimism was last higher on February 17, 2016 (37.8%). The big jump put bearish sentiment above its historical average of 30.5% for just the third time in the 16 weeks.

The big jump in pessimism occurred as the major U.S. indexes pulled back from their recent highs. Many AAII members have previously expressed concerns about valuations and/or a potential drop in stock prices occurring. No members specifically mentioned last weekend's shooting at the Orlando night club in response to this week's special question, though global terrorism is having an impact on some member's market outlook. The majority of this week's votes were recorded prior to yesterday's Federal Open Market Committee announcement, as the survey period runs from Thursday through Wednesday. As far as next week's referendum on Great Britain's membership in the European Union ("Brexit"), our survey suggests that individual investors are not considering it as part of their outlook for U.S. stocks.

Giving individual investors' cause for concern is the slow pace of U.S. economic growth and uncertain pace of global economic growth, terrorism and global unrest, lackluster corporate earnings, the prevailing level of valuations, the forthcoming November elections and monetary policy. Some AAII members, however, are encouraged by sustained domestic economic growth, corporate earnings and the proximity of stock prices to their record highs.

This week's special question asked AAII members how oil prices are affecting their outlook for the stock market. Slightly more than four out of 10 respondents (42%) said oil prices were not having an impact or were only having a small impact. Some pointed to the recent stabilization in oil prices, while others said they either don't own oil stocks or don't pay attention to the commodity. Nearly 16% said oil was having a positive impact, while the same number said oil was having a negative impact. Those who said oil prices were boosting their outlook pointed to the reduced volatility or viewed the rebound in prices as signaling economic growth. Those in the negative camp cited volatility in the commodity's prices and the adverse impact on the economy. About 5% said that changes in oil prices move stock prices.

Here is a sampling of the responses:

  • "A rising oil price would indicate improving demand and economic metrics."
  • "No impact absent any quick and sustained changes in oil prices."
  • "No effect except for oil producer stocks."
  • "Rising oil prices indicate increased demand as the world's economies improve; a good scenario for market growth."
  • "Not much impact as oil prices seemed to have stabilized."

This week's AAII Sentiment Survey results:

  • Bullish: 25.3%, down 2.5 percentage points
  • Neutral: 37.2%, down 7.2 percentage points
  • Bearish: 37.5%, up 9.7 percentage points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

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.