Optimism among individual investors about the short-term direction of the stock market improved for the third consecutive week. The latest AAII Sentiment Survey also shows a modest increase in neutral sentiment and a drop in pessimism.
Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.2 percentage points to 35.3%. Even with the increase, optimism remains below its historical average of 38.0% for the 30th time this year and the 18th time in 19 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased 1.2 percentage points to 36.8%. Neutral sentiment is above its historical average of 31.5% for the 17th time in 18 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.4 percentage points to 27.8%. Pessimism is below its historical average of 30.5% for the first time in seven weeks.
The continued improvement in optimism and decrease in pessimism is occurring as volatility in stock markets has calmed down from last month. Bullish and neutral sentiment continue to be at their highest levels and bearish sentiment is at its lowest level since July 31, 2019. All three indicators are currently within their typical ranges.
Many individual investors have been monitoring trade negotiations, particularly between the U.S. and China. Additionally, many AAII members expect a recession to start within the next 12 to 24 months. Also having an influence on sentiment are Washington politics, geopolitics, valuations, corporate earnings, monetary policy and interest rates.
This week’s special question asked AAII members for their opinion about the overall level of sentiment currently being reflected by the market. We received a variety of responses. Almost one of four respondents (22%) believe current sentiment reflects uncertainty, indecisiveness or caution. About 14% think there is too much optimism being priced in. An additional 7% describe sentiment as being optimistic. Conversely, 11% think there is too much pessimism. A similar proportion of respondents think the current level of sentiment is reasonable or about right. About 9% say sentiment is being driven by headlines, politics, trade or the Federal Reserve.
Here is a sampling of the responses:
- “Too many people being too carefully invested due to angst. This means upward potential.”
- “Overall sentiment seems right.”
- “The market seems to be treading water while waiting for something big to happen.”
- “Too much reaction to the news media and not enough focus on the fundamentals.”
- “Too optimistic and not based on facts and data.”
This week’s AAII Sentiment Survey results:
- Bullish: 35.3%, up 2.2 percentage points
- Neutral: 36.8%, up 1.2 percentage points
- Bearish: 27.8%, down 3.4 percentage points
- Bullish: 38.0%
- Neutral: 31.5%
- 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.