All three indicators in the AAII Sentiment Survey remained close to each other for the second consecutive week. Just 1.4 percentage points separate bullish and bearish sentiment, with neutral sentiment in between the two.
Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 0.5 percentage points to 34.2%. The modest increase was not enough to prevent optimism from staying below its historical average of 38.5% for the 25th consecutive week and the 30th time out of the last 31 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined by a full percentage point to 33.0%. Even with this week’s pullback, neutral sentiment remains above its historical average of 31.0% for the 16th consecutive week and the 21st time out of the last 22 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 0.5 percentage points to 32.8%. Pessimism was last higher on May 17, 2017 (34.3%). The historical average is 30.5%.
Though up by just a cumulative 0.7 percentage points over the past two weeks, bearish sentiment is now 8.5 percentage points above its 2017 low of 24.3%, set on July 26. Pessimism is also above its historical average on three consecutive weeks for the first time since last April.
While some individual investors are encouraged by this year’s record highs for the major indexes, many others have expressed concern about the possibility of a pullback and/or the prevailing level of valuations. The Trump administration remains at the forefront of many investors’ minds and is having a significant impact on sentiment. Other factors playing roles are earnings and interest rates/monetary policy.
This week’s special question asked AAII members how big of an impact international events and news are having on their outlook for the U.S. stock market. Slightly more than two of out five respondents (41%) said international events and news are having little to no impact on their outlook. Many of these respondents said domestic events are more influential, while several others said they focus on the long term or view international events as having only a temporary impact. About 34% of respondents described international events and headlines as having a moderate impact on their outlook. North Korea was frequently mentioned, as this week’s survey period started last Thursday. Approximately 25% said international events were having a significant impact on their outlook, particularly because of the tensions with North Korea. U.S. president Donald Trump was brought up by respondents in all three of the aforementioned groups.
Here is a sampling of the responses:
- “International news events come and go over the years and are eventually discounted.”
- “Not too much. President Trump is all bluster.”
- “Very much, especially the North Korea crisis.”
- “Some impact, but less than domestic issues.”
- “Not much for now, but could change if ‘fire and fury’ becomes more likely.”
This week’s AAII Sentiment Survey results:
- Bullish: 34.2%, up 0.5 percentage points
- Neutral: 33.0%, down 1.0 percentage points
- Bearish: 32.8%, up 0.5 percentage points
- Bullish: 38.5%
- Neutral: 31.0%
- Bearish: 30.5%
The AAII Sentiment Survey has been conducted weekly since July 1987. The survey and its results are available online.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.