AAII Sentiment Survey: Neutral Sentiment Rises To New 2016 High

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


Neutral sentiment climbed to a level not seen since New Year's Eve 2015, staying above its historical average for the 11th week in a row.

Optimism has only exceeded 33% twice since last November; both times were in March 2016.

Survey respondents expressed disdain for corporate inversions as well as the current U.S. tax code.

The percentage of individual investors describing their short-term outlook for stocks as "neutral" rose to a new high for the year. The rise occurred as optimism pulled back to an unusually low level. Pessimism rebounded, but remains below average.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.3 percentage points to 27.8%. The decline mostly reverses last week's rebound and keeps optimism below its historical average of 39.0% for a 23rd consecutive week and the 56th out of the past 58 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 0.9 percentage points to 47.3%. Neutral sentiment was last higher on December 31, 2015 (51.3%). This is the 11th consecutive week and the 63rd out of the past 67 weeks with a neutral sentiment reading above its historical average of 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 3.4 percentage points to 24.9%. Even with the rebound, pessimism remains below its historical average of 30.0% for a seventh consecutive week.

Optimism is back at an unusually low level, more than one standard deviation below its historical average. During 20 out of the past 22 weeks, less than one in three individual investors have expressed optimism about the short-term direction of the stock market. Bullish sentiment has only exceeded 33% twice since mid-November, on March 10 (37.4%) and March 24 (33.8%).

The drop in bullish sentiment occurred even though stock prices generally rose throughout the survey period. 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 what they thought about corporate inversions. Nearly 31% of respondents said that Congress should change the tax code. Several in this group said reform should include lower taxes or measures to ban or discourage more inversions. Others in this group expressed their dislike for inversions, but said the transactions were a result of a broken tax code. More than 30% of respondents said that they disapprove or don't like inversions, with many wanting them banned completely. About 19% either approve of such transactions or don't object to them, primarily because they think corporations should take actions that increase profits and share price. Slightly more than 5% said the tax code and other regulations penalize U.S. companies and are responsible for causing companies to move their headquarters overseas.

Here is a sampling of the responses:

  • "I am strongly against this type of merger, but I understand why companies are doing this."
  • "I don't like it, but the whole tax structure needs to be overhauled."
  • "Corporate officers should maximize profits, which means minimizing taxes."
  • "I believe it is a bad practice and should not be allowed."
  • "I'd like to see our corporate tax rate lowered, which would discourage the inversions."

This week's AAII Sentiment Survey results:

  • Bullish: 27.8%, down 4.3 percentage points
  • Neutral: 47.3%, up 0.9 percentage points
  • Bearish: 24.9%, up 3.4 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 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.

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