AAII Sentiment Survey: Optimism Continues To Fall

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Optimism and pessimism declined, while neutral sentiment rose.

Optimism has now been below 33% for six weeks in a row, and at an unusually low level for the third week in a row.

More than 4 in 10 respondents are dissatisifed with the Federal Reserve's communications about monetary policy, but their opinions aren't shared by all.

The percentage of individual investors expecting stock prices to rise is down for a third consecutive week in the latest AAII Sentiment Survey. Neutral sentiment rose, while pessimism pulled back.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.8 percentage points to 24.0%. Optimism was last lower on June 22, 2016 (22.0%). This is the 47th consecutive week and the 80th out of the past 82 weeks with a bullish sentiment reading below its historical average of 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.0 percentage points to 38.9%. The increase puts neutral sentiment above its historical average of 31.0% for the 35th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 1.2 percentage points to 37.1%. Pessimism is above its historical average of 30.5% for the third consecutive week and the fourth time in five weeks.

This is the sixth consecutive week with fewer than three out of 10 individual investors expressing optimism about the short-term direction of stock prices. It is also the third consecutive week that bullish sentiment is at an unusually low level (more than one standard deviation below average). The typical long-term range for optimism is 28.1% to 48.7%.

The downward volatility that occurred last Friday and Monday likely did not help investor sentiment, as many individual investors fret about the possibility of a sizable drop occurring. The election is also creating uncertainty among some individual investors. Further adding to pessimism about the short-term direction of stock prices are concerns about valuations, global economic uncertainty and the pace of corporate earnings growth. Giving other individual investors reason for optimism are this summer's rise in stock prices, 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 for their opinion about how clearly the Federal Reserve is communicating its monetary policy intentions. More than four out of every 10 respondents (44%) are not satisfied with the Fed's communication about monetary policy. These respondents described it as being unclear, poor, inconsistent or needing improvement. Not all individual investors feel this way. Approximately 31% of respondents say the Fed is being clear or is doing a good job of communicating its intentions for monetary policy.

Here is a sampling of the responses:

  • "Not very, at least as far as the timing of the increase goes."
  • "I don't feel that they are clearly communicating."
  • "The Fed appears uncertain as to when they will raise interest rates and I think that is very transparent of them."
  • "The Fed is doing a good with job communicating monetary policy."
  • "Sometimes I think the Federal Reserve's communications are in a state of flux."

AAII Sentiment Survey results:

  • Bullish: 24.0%, down 0.8 percentage points
  • Neutral: 38.9%, up 2.0 percentage points
  • Bearish: 37.1%, down 1.2 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.

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