AAII Sentiment Survey: Optimism Falls To Lowest Level Since The Election

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Optimism declined to its lowest level since before the presidential election, ending a 9-week streak of readings above 40%.

Neutral sentiment and pessimism both rose last week.

New highs set by the NASDAQ are leaving investors with very mixed feelings.

Optimism among individual investors waned, falling to its lowest level since the election, in the latest AAII Sentiment Survey. Both neutral sentiment and pessimism rose.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.6 percentage points to 37.0%. Optimism was last lower on November 2, 2016 (23.6%). The historical average is 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 0.9 percentage points to 30.3%. Neutral sentiment was last higher on December 7, 2016 (30.4%). The rise is not large enough to keep neutral sentiment from remaining below its historical average of 31.0% for the seventh consecutive week and the ninth time in 10 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 5.7 percentage points to 32.7%. Pessimism was last higher on November 2, 2016 (34.3%). This is also just the second time in 11 weeks that bearish sentiment is above its historical average of 30.5%.

The drop in optimism ends a streak of nine consecutive weeks with bullish sentiment above 40%, the longest such streak since October 15 through December 10, 2014. The decline is occurring as the post-election rally has paused. At current levels, all three sentiment indicators are close to their historical averages.

The potential impact that President-elect Donald Trump could have on the economy is causing uncertainty or concern among some investors, while encouraging 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 for their thoughts about the recent new record highs set by the NASDAQ. Responses were very mixed. Approximately 18% of respondents think that the NASDAQ will continue to rise, with the upward momentum primarily being driven by tech stocks. An additional 6% view the record highs as a positive event. Slightly more than 12% attributed the upward momentum to president-elect Donald Trump's November victory. These respondents were largely split between those who viewed the new administration as being business-friendly and those who think the index will stabilize after tomorrow's inauguration. Nearly 18% of respondents think the NASDAQ and/or the broader market will pull back. An additional 11% say that the index is overvalued.

Here is a sampling of the responses:

  • "An overreaction due to Trump's victory. Will 'normalize' after January 20.'"
  • "It's about time."
  • "May have gone up too far, too fast."
  • "Pent-up demand waiting for a business-friendly administration."
  • "There is a lot of technology in the NASDAQ and that is the future."

This week's AAII Sentiment Survey results:

  • Bullish: 37.0%, down 6.6 percentage points
  • Neutral: 30.3%, up 0.9 percentage points
  • Bearish: 32.7%, up 5.7 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 at http://www.aaii.com/sentimentsurvey.

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.