AAII Sentiment Survey: Optimism Rebounds But Remains Unusually Low

Summary

• Bullish: 27.2%, up 5.0 percentage points.
• Neutral: 30.2%, down 1.8 percentage points.
• Bearish: 42.7%, down 3.2 percentage points.

Optimism among individual investors continues to be unusually low despite rising to a four-week high in the latest AAII Sentiment Survey. Both neutral and bearish sentiment are lower this week.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 5.0 percentage points to 27.2%. Nonetheless, optimism remains below its historical average of 38.0% for the 18th consecutive week and the 23rd week this year.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 1.8 percentage points to 30.2%. Neutral sentiment is below its historical average of 31.5% for the 24th week this year.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.2 percentage points to 42.7%. Pessimism remains above its historical average of 30.5% for the 20th consecutive week and the 22nd time this year.

As noted above, optimism remains at an unusually low level. At the same time, pessimism continues to be at an unusually high level. Historically, both have generally been followed by above-average and above-median returns for the S&P 500 index, though the link is stronger for unusually low bullish sentiment than it is for unusually high bearish sentiment.

The current level of pessimism reflects concerns about the coronavirus pandemic and the economy. However, some AAII members have been encouraged by the rebound in the stock market from its March lows. Other factors influencing AAII members’ sentiment include the economy, corporate earnings, the November U.S. presidential election and interest rates.

For this week’s special question, we asked AAII members what information they will be looking for companies to give when they report second-quarter earnings. Some of the respondents gave more than one answer.

Slightly more than one out three of respondents (36%) say they are looking for companies to report full-year and quarterly forward guidance. Respondents also say they will be looking for information on current and forecasted earnings (named by 12% of respondents) and revenues (named by 17% of respondents).

This compares to 9% of respondents who say they will be looking for companies to provide information on how the coronavirus pandemic has impacted their business and their strategy going forward if the current situation persists. About 8% of respondents say they do not have any expectations for second-quarter earnings due to economic uncertainty. Additionally, 8% of respondents say they are interested in seeing information on companies’ employment, hiring and layoff plans. Finally, 6% of respondents say they will be looking for information on whether companies will maintain their dividends and 4% of respondents say they will be looking out for the amount of cash on hand companies are holding.

Here is a sampling of the responses:

• “I will be looking for companies to resume providing earnings guidance; however, given the rise in coronavirus cases in recent weeks, I’m not confident many will be willing to do so.”
• “I will be interested to see what steps the companies are taking to mitigate all the current negativity around the pandemic to protect their bottom line and/or be part of the solution rather than just looking for a handout from the government.”
• “Management’s outlook for the economy and their own company’s business prospects over the next 12–18 months. What is the company’s strategy to adapt to the new economic environment?”
• “None as there is way too much uncertainty for them to give meaningful guidance. Best to wait for third- and fourth-quarter 2020 and 2021 when the situation may be clearer.”
• “Will be looking for the medium and long-term impact of the coronavirus on the sales and operations and how the executives are driving resilience and sustainability without too much focus on the quarterly results.”

This week’s AAII Sentiment Survey results:

• Bullish: 27.2%, up 5.0 percentage points
• Neutral: 30.2%, down 1.8 percentage points
• Bearish: 42.7%, down 3.2 percentage points

Historical averages:

• 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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