AAII Sentiment Survey: Fewest Bulls Since 2005

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


Optimism is at its lowest level in 11 years while neutral sentiment is at its highest level in 16 years.

This is only the sixth time since 1989 that neutral sentiment has been above 50%.

This week is only the sixth time in the survey's entire history that bullish sentiment has been below 20% while neutral sentiment has been above 50%.

The percentage of individual investors optimistic about short-term gains occurring in the stock market is at its lowest level in 11 years. At the same time, the percentage of investors describing their outlook as neutral is at its highest level in 16 years, according to the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.6 percentage points to 17.8%. This is the lowest level of optimism recorded by our survey since April 14, 2005 (16.5%). It is also the 29th consecutive week and the 62nd out of the past 64 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, jumped 6.3 percentage points to 52.9%. Neutral sentiment was last higher on April 12, 1990 (56.0%). Neutral sentiment has now been above 40% for 12 consecutive weeks and above its historical average of 31% for 17 consecutive weeks, as well as for 69 out of the past 73 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 4.7 percentage points to 29.4%. The historical average is 30%.

Since the AAII Sentiment Survey started in June 1987, a neutral sentiment reading above 50% has only been recorded 28 times. Only six of those readings were recorded after 1989 (January 1991, July 1991, August 1994, February 2003, December 2015 and this week). The remaining 22 readings are all from the approximate two-year span of December 1987 through October 1989. On average, the S&P 500's 26- and 52-week returns following such occurrences were 8.4% and 20.5%, respectively.

Even rarer is having bullish sentiment below 20% and neutral sentiment above 50% on the same week. This week is just the sixth time such a combination has happened. It previously occurred four times in 1988 and once in 1989. On average, the S&P 500's 26- and 52-week returns following those five occurrences were 11.2% and 25.7%, respectively.

More information is available on the AAII Blog. This morning we posted a table showing every occurrence neutral sentiment was above 50% and the market's subsequent returns, as well as a table showing the six weeks with bullish sentiment below 20% and neutral sentiment above 50%. In addition, last week we published a listing of the previous 30 sub-20% bullish sentiment readings and the S&P 500's subsequent returns. Keep the small sample size and the dates of those readings (especially with neutral sentiment) in mind when reviewing the data.

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, the prevailing level of valuations, the forthcoming election and monetary policy. Some AAII members, however, are encouraged by sustained domestic economic growth, corporate earnings and still comparatively low energy prices.

This week's special question asked AAII members how first quarter earnings have influenced their outlook for stock prices. Slightly more than one out of four respondents (27%) said that quarterly results have not altered their outlook. Many said they don't alter their expectations based on quarterly results, while several others pointed to other factors (namely the November elections and monetary policy) as having a larger impact. Nearly 22% viewed first quarter earnings as not being good or supportive of current stock prices. Just 5% of respondents feel more positive in reaction to first-quarter earnings.

Slightly more than 7% of respondents simply described their outlooks as pessimistic without mentioning earnings. Several others described market volatility and the upcoming presidential election as impacting their outlook.

Here's a sampling of the responses:

  • "Corporate earnings are slowing and/or stagnating. This will have a negative impact on stocks in general."
  • "Way too much Fed speak for stocks to go up no matter what earnings are."
  • "Expecting stocks to retreat until after the November election."
  • "I feel earnings have been better than expected, so I'm slightly more bullish."
  • "No influence. I do not pay a lot of attention to short-term earnings and projections."

This week's AAII Sentiment Survey results:

  • Bullish: 17.8%, down 1.6 percentage points
  • Neutral: 52.9%, up 6.3 percentage points
  • Bearish: 29.4%, down 4.7 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.