AAII Sentiment Survey: Optimism Falls To A 4-Week Low

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


Optimism is at a four-week low, and below 30% for the 8th time in 9 weeks.

Neutral sentiment rebounded strongly, while pessimism pulled back slightly.

More than half of those surveyed agree with the Fed's decision to keep interest rates steady.

The number of individual investors expecting stock prices to rise over the short term is at a four-week low, according to the latest AAII Sentiment Survey. Neutral sentiment rebounded strongly, while pessimism pulled back slightly.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 3.4 percentage points to 22.0%. Optimism was last lower on May 25, 2016 (17.8%). The drop makes this the eighth time in nine weeks that fewer than three out of 10 survey respondents are optimistic. It is also the 33rd consecutive week and the 66th out of the past 68 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, rebounded by 5.7 percentage points to 42.8%. The rise follows last week's four-month low. The increase keeps neutral sentiment above its historical average of 31.0% for the 21st consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 2.3 percentage points to 35.2%. The drop follows last week's four-month high, but is small enough to keep pessimism above its historical average of 30.5% on consecutive weeks for just the second time since February.

Uncertainty and lack of optimism continue to be trends suggested by our weekly survey. More than four out of 10 individual investors have described their short-term market outlook as "neutral" during 14 out of the first 25 weeks of this year. (Neutral sentiment readings above 40% are unusually high, meaning more than one standard deviation above the long-term average.) At the same time, optimism has only exceeded 30% just seven times this year.

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 whether the Federal Open Market Committee was correct in keeping interest rates unchanged at its June meeting. More than half of respondents (56%) said the Fed was correct not to raise rates. Slow domestic economic growth and global uncertainty-including today's Brexit vote-were the primary reasons given why. About one-third of respondents (34%) disagreed, saying the Fed should have raised rates. Many of these members think rates should be moved back to more normal levels and/or that ongoing monetary policy is hurting savers.

Here is a sampling of the responses:

  • "They are correct because the economy is fragile and the rates increases will slow down everything."
  • "They are right because of world conditions and uncertainty."
  • "Even a small increase, like 0.25%, is better than getting nothing on money market accounts."
  • "Incorrect. They should have normalized rates long ago."
  • "No change is correct now, but the Fed erred in failing to raise rates 18 months ago."

This week's AAII Sentiment Survey results:

  • Bullish: 22.0%, down 3.4 percentage points
  • Neutral: 42.8%, up 5.7 percentage points
  • Bearish: 35.2%, down 2.3 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.