AAII Sentiment Survey: Optimism Falls To Lowest Level Since June

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Summary

Optimism about the short-term direction of stock prices fell to an unusually low level, one not seen since last June.

Pessimism increased, while neutral sentiment decreased.

As a whole, AAII members surveyed are ambivalent about the valuations of the housing market.

Optimism among individual investors about the short-term direction of stock prices fell to an unusually low level, one not seen since last June. The latest AAII Sentiment Survey also shows an increase in pessimism and a decrease in the percentage of investors describing their outlook as neutral.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.7 percentage points to 23.7%. Optimism was last lower on June 22, 2016 (22.0%). This week's drop puts optimism below its historical average of 38.5% for the 50th consecutive week and the 83rd out of the past 85 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 2.4 percentage points to 38.4%. This is a four-week low. Nonetheless, neutral sentiment is above its historical average of 31.0% for the 38th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 4.1 percentage points to 37.8%. The increase puts pessimism at a four-week high and above its historical average of 30.5% for the sixth time in eight weeks.

This week's bullish sentiment reading ranks as the 104th lowest reading out of the more than 1,500 weekly results recorded during the 29-year history of our weekly survey.

Since reaching 35.6% in mid-August, optimism has declined during eight out of nine weeks. Large-cap stock prices are only down modestly since then, and small-cap stocks have been essentially flat over this period. Both have generally trended downward this month. The lack of new market highs may be playing a role in dampening optimism.

Also causing concern for some investors is the possibility of the stock market experiencing a larger drop, valuations, the November elections, global economic uncertainty and the pace of corporate earnings growth. Giving other individual investors reason for optimism are the perceived lack of investment alternatives, corporate earnings, low/stable energy prices and sustained, albeit slow, economic growth.

This week's special question asked AAII members about their perception of the current state of the housing market. The two largest groups of respondents were nearly evenly split, and opinions overall were mixed. Nearly 27% of described the housing market as either being overvalued, weak or otherwise at risk of weakening. About 25% described the housing market as being good and/or continuing to do well until interest rates increase. Slightly more than 11% said housing is growing slowly, while 7% said housing is a bubble and 6% believe the housing market is steady.

Here is a sampling of the responses:

  • "Decent, but it's not clear about the overall demand. Some markets are hot, while some are not."
  • "Prices are rising a bit here and there, but there is no bubble building."
  • "Market is picking up slightly and should continue to expand at a modest pace."
  • "A little ahead of itself. The anticipated, gradual rise in interest rates should make real estate a relative underperformer in the next couple of years."
  • "Where I live, housing prices have increased too fast and do not seem to be sustainable."
  • "Ready for a correction. Only low mortgage rates are propping up the market."

This week's AAII Sentiment Survey results:

  • Bullish: 23.7%, down 1.7 percentage points
  • Neutral: 38.4%, down 2.4 percentage points
  • Bearish: 37.8%, up 4.1 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.).

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.