Pessimism among individual investors about the short-term direction of stock prices is at its highest level in more than four months. At the same time, optimism is near, though slightly below, its long-term average. The survey period runs from Thursday through Wednesday. Most of the votes were recorded before yesterday, when the Dow Jones industrial average rose above 21,000.
Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.6 percentage points to 37.9%. The modest decrease follows what had been a six-week high. The historical average is 38.5%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 2.8 percentage points to 26.5%. Neutral sentiment was last lower on December 21, 2016 (26.2%). The historical average is 31.0%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 3.3 percentage points to 35.6%. Pessimism was last higher on October 19, 2016. The increase keeps bearish sentiment above its historical average of 30.5% for the sixth time in seven weeks.
All three of the sentiment indicators remain well within their typical historical ranges. The potential impact that President Trump could have on the domestic and global economy continues to cause uncertainty and/or concern among some investors, while encouraging others. Some individual investors view the market's upward momentum as positive. Others worry that the sharp upward run will lead to a forthcoming drop in stock prices.
This week's special question asked AAII members what factors are most influencing their six-month outlook for stocks. Nearly three-quarters of respondents (73%) cited national politics, particularly President Donald Trump's policies and what actions Congress may take. Tax reform was mentioned by many (20% of respondents), followed by regulatory reform and uncertainty over what legislation will actually be passed. Just under 23% of all respondents listed the ongoing rally and the prevailing stock valuations, with several of these respondents expressing concerns about the level of valuations or that a drop could be forthcoming. Monetary policy was cited by 8% of all respondents, followed by corporate earnings growth (7%) and investor sentiment (7%). Some respondents listed more than one factor.
Here is a sampling of the responses:
- "Actions taken by the Trump administration to improve the business climate in the U.S."
- "The run-up has been too good for too long. It is time for a correction."
- "Optimism, less regulation, lower corporate taxes and better earnings."
- "Uncertainty regarding the Trump administration and direction of the country, both domestically and internationally."
- "Recent increase in market price in excess of earnings growth."
This week's AAII Sentiment Survey results:
- Bullish: 37.9%, down 0.6 percentage points
- Neutral: 26.5%, down 2.8 percentage points
- Bearish: 35.6%, up 3.3 percentage points
- 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.). The survey and its results are available 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.