AAII Sentiment Survey: Neutral Sentiment Rebounds

Summary

Neutral sentiment rebounded from last week's two-year low.

Pessimism increased slightly, while optimism remained mostly unchanged.

Over 40% of surveyed investors said that interest rate hikes are having no impact on their strategy, or only a minor impact.

Neutral sentiment rebounded from last week's two-year low in the latest AAII Sentiment Survey. Furthermore, pessimism among individual investors declined, while optimism remained nearly unchanged.

Bullish sentiment, expectations that stock prices will rise over the next six months, is 44.6%, a very slight decline of 0.1 percentage points. This is the sixth consecutive week optimism is above 40% and the seventh week it is above its historical average of 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 3.2 percentage points to 26.2%. Neutral sentiment remains below its historical average of 31.0% for the third consecutive week and the fifth time in six weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.2 percentage points to 29.2%. The drop puts pessimism below its historical average of 30.5% for the sixth time in seven weeks.

The Dow Jones industrial average's proximity to 20,000 hasn't altered optimism much so far in our survey. Since mid-November, bullish sentiment has largely stayed within the mid-40% range. This level of optimism, though above average, is within the typical historical range. (The one exception was the unusually high reading of 49.9% recorded on November 23.) Last week's interest rate hike announcement hasn't altered sentiment much either, though opinions about it do vary as the responses to this week's special question show.

Overall opinions about the post-election rally among individual investors are mixed. Some are optimistic about the impact that President-elect Donald Trump could have on the economy, while others think stocks have risen too far too fast or view the rally as not being temporary in nature. Also playing a role is uncertainty among some individual investors about the president-elect's policies, the direction of interest rates, valuations and the pace of economic and earnings growth.

This week's special question asked AAII members what impact the possibility of additional rate hikes occurring in 2017 has on their market outlook. Slightly more than two out of five respondents (42%) say that the prospect of future rate hikes either doesn't impact their outlook or only has a minor influence. Many of these respondents say that the impact will be minor if tightening is done in a gradual manner. Nearly 16% of respondents welcome the prospect of additional rate hikes. They view such actions as a sign that economic growth is accelerating. Just under 14% expressed a negative view, with several saying that such hikes could hurt stock prices.

Here is a sampling of the responses:

  • "As long as the rate hikes are small and gradual, I see little impact on my view of the stock market in 2017."
  • "It's a sign of an improving economy and a move toward normal rates."
  • "Additional rate hikes, while needed to reward savers, will take some of the hot air out of the equity market balloon."
  • "Prospect of lower taxes and deregulation will offset the negative effects of higher interest rates."
  • "It depends on how many hikes occur."

This week's AAII Sentiment Survey results:

  • Bullish: 44.6%, down 0.1 percentage points
  • Neutral: 26.2%, up 3.2 percentage points
  • Bearish: 29.2%, down 3.2 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.