AAII Sentiment Survey: Optimism Nears A Three-Month High

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Summary

Optimism is near a three-month high in the latest AAII Sentiment Survey, but remains below its historical average for the 35th week in a row.

Pessimism pulled back for a third consecutive week, while neutral sentiment rebounded.

Investors' six-month outlook for stocks is mostly being impacted by the U.S. presidential election and global uncertainty.

Optimism among individual investors about the short-term direction of stock prices is near a three-month high in the latest AAII Sentiment Survey. Pessimism pulled back for a third consecutive week, while neutral sentiment rebounded.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.1 percentage points to 31.1%. Optimism was last higher on April 20, 2016 (33.4%). Nonetheless, bullish sentiment remains below its historical average of 38.5% for the 35th consecutive week and the 68th out of the past 70 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 4.6 percentage points to 42.3%. The rise keeps neutral sentiment above its historical average of 31.0% for the 23rd consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 6.8 percentage points to 26.7%. This is lowest level of pessimism since April 20, 2016 (23.9%). The historical average is 30.5%.

This is just the eighth week this year with more than three out of 10 individual investors describing their short-term outlook for stocks as "bullish." (Optimism was at 30.0% on March 16.) In contrast, more than four out of 10 respondents have described their outlook as "neutral" on 15 out of this year's first 27 weeks. As far as pessimism goes, bearish sentiment has topped 30% 14 times this year.

The rise in optimism occurred as prices rebounded, with large-cap stocks trading back near their record high. Concerns about Brexit have not subsided, however.

This week's special question asked AAII members what factors are most influencing their six-month outlook for stocks. The top two factors were the U.S. presidential election (listed by 45% of respondents) and global economic uncertainty (named by 39%). More than one out of four respondents (27%) specifically pointed to the uncertainty being created by the vote in Britain to leave the European Union (Brexit). Nearly 17% of respondents cited prevailing valuations, with several describing them as being too high, while about 16% cited Federal Reserve policy and frustration with the still-low level of interest rates. Slightly more than 13% cited earnings, with several respondents saying growth is too slow. Many respondents listed more than one factor.

Here is a sampling of the responses:

  • "Uncertainty with this election cycle"
  • "Continued slow GDP and earnings growth"
  • "The agreed upon terms of the UK's exit from membership in the EU"
  • "Stock valuations are at historical highs and this bull market is getting very old"
  • "Overall uncertainty with the EU and the presidential race"

This week's AAII Sentiment Survey results:

  • Bullish: 31.1%, up 2.1 percentage points
  • Neutral: 42.3%, up 4.6 percentage points
  • Bearish: 26.7%, down 6.8 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.