AAII Sentiment Survey: Optimism Rises To A 6-Week High

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Bullish sentiment is starting 2017 at a six-week high.

Neutral and bearish sentiment both slightly declined.

More than a third of polled investors think the biggest impact to the market in 2017 will come from presidential and Congressional policies.

Optimism among individual investors is starting 2017 at a six-week high, according to the latest AAII Sentiment Survey. The rise in optimism comes as both neutral and bearish sentiment declined modestly.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 0.6 percentage points to 46.2%. Optimism was last higher on November 23, 2016 (49.9%). The rise keeps bullish sentiment above 40% for an eighth consecutive week and above its historical average of 38.5% for a ninth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 0.1 percentage points to 28.6%. This is the fifth consecutive week and the seventh time in eight weeks that neutral sentiment is below its historical average of 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.5 percentage points to 25.2%. This is a five-week low; pessimism was last lower on November 30, 2016 (25.1%). The decline also keeps bearish sentiment below its historical average of 30.5% for the eighth time in nine weeks.

All three sentiment measures are starting the new year within their typical historical ranges. The optimism shared by many, but not all, investors extends a shift in expectations that started the week of the November election.

The potential impact that President-elect Donald Trump could have on the economy is encouraging some individual investors and creating uncertainty or concern among others. Also influencing investor sentiment are valuations, earnings, consumer sentiment and the magnitude and timing of future interest rates.

This week's special question asked AAII members what they thought will most influence the direction of stock prices in 2017. More than a third of all respondents (37%) said the policies instituted by the Trump administration and the legislation passed by the Republican-controlled Congress. Tax reform was listed by 18% of respondents, while deregulation and federal spending were each cited by 5% of respondents. Beyond the political arena, slightly more than 9% of respondents said earnings will influence stock prices, 8% said monetary policy and 6% said consumer sentiment. Some respondents gave more than one factor in their answers.

Here is a sampling of the responses:

  • "Actual government changes by the Trump administration versus the high expectations for him."
  • "President Trump's economic plans and actions."
  • "The extent of deregulation and changes in trade policy."
  • "Federal Reserve actions and passed tax legislation."
  • "Earnings growth."

This week's AAII Sentiment Survey readings:

  • Bullish: 46.2%, up 0.6 percentage points
  • Neutral: 28.6%, down 0.1 percentage points
  • Bearish: 25.2%, down 0.5 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.