Pessimism among individual investors is down for the second consecutive week, according to the latest AAII Sentiment Survey. At the same time, neutral sentiment is now at its highest level since mid-February.
Bullish sentiment, expectations that stock prices will rise over the next six months, rose 4.1 percentage points to 35.3%. The historical average is 38.5%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 4.1 percentage points to 34.2%. The increase puts neutral sentiment back above its historical average of 31.0% for the first time in five weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 8.2 percentage points to 30.5%. Pessimism was last lower on February 8, 2017 (27.7%). This is the ninth week in the past 10 with a bearish sentiment at or above its historical average of 30.5%.
After reaching an unusually high level of 46.5% two weeks ago, pessimism has pulled back by a cumulative 16.0 percentage points. At the same time, neutral sentiment has rebounded by a cumulative 10.7 percentage points. Neutral sentiment had fallen to near the bottom of its typical range, having registered 23.5% on March 8, 2017. It is worth noting that despite these shifts, pessimism is currently right at its historical average while optimism remains below its historical average.
Some individual investors view last week's rate hike by the Federal Open Market Committee (FOMC) as a positive, though have not changed their outlook in response, as the answers to this week's special question show. The speed and the extent of the post-election rally and the prevailing level of valuations remain a point of concern. At the same time, the potential impact that President Trump could have on the domestic and global economy continues to cause uncertainty or concern among some investors, while encouraging others.
This week's special question asked AAII members how the FOMC's raising of interest rates has impacted their market outlook. Approximately 60% of respondents said that the rate hikes are having no or very little impact on their outlook and/or their portfolio decisions.
Many of these respondents said that last week's announcement by the Federal Open Market Committee was expected or otherwise already priced in. Several others said interest rates still remain too low. About 19% have a positive view, saying that the tightening cycle expresses confidence in the economy and/or is a sign of economic growth. Just 6% view the rate hike as a negative for stocks.
Here is a sampling of the responses:
- "Rising interest rates have been expected for quite some time, so no surprise."
- "I want to purchase some higher-yielding CDs, so waiting for that. No impact on my market outlook."
- "Not at all. I view it as a return to normal."
- "Confirmed improving economy. Slow raises should be of benefit to equity growth."
- "It's made my outlook, short-term, a bit more bearish as the market digests what looks like three interest rate hikes."
This week's AAII Sentiment Survey results:
- Bullish: 35.3%, up 4.1 percentage points.
- Neutral: 34.2%, up 4.1 percentage points.
- Bearish: 30.5%, down 8.2 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.
The AAII Sentiment Survey has been conducted weekly since July 1987. The survey and its results are available online.
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.