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AAII Sentiment Survey: Optimism Declines But Remains Unusually High

Dec. 10, 2020 6:25 PM ET
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  • Bullish: 48.1%, down 1.0 percentage points.
  • Neutral: 25.1%, down 3.2 percentage points.
  • Bearish: 26.9%, up 4.2 percentage points.

Optimism among individual investors about the short-term direction of the stock market declined but remained unusually high. Pessimism rebounded while neutral sentiment declined.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.0 percentage points to 48.1%. Optimism is above its historical average of 38.0% for the fifth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 3.2 percentage points to 25.1%. Even with the decrease, neutral sentiment remains below its historical average of 31.5% for the 46th time out of the past 48 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 4.2 percentage points to 26.9%. Pessimism is below its historical average of 30.5% for the fifth consecutive week.

As noted above, bullish sentiment remains at an unusually high level (more than one standard deviation above its historical average). It is above the breakpoint between typical and unusually high readings of 48.0% for the second consecutive week and the third time out of the past five weeks. Historically, such readings have been followed by lower-than-average six- and 12-month returns for the S&P 500 index. Given the possibility of coronavirus vaccines soon being available, the historical trends may not be repeated.

The positive results from Pfizer’s and Moderna’s late-stage trials have made many individual investors either more optimistic or, at least, less pessimistic. Concern about the shorter-term trends in coronavirus cases and the resulting economic impact remain, however. Also influencing individual investors’ sentiment are the results of the recent election, valuations and interest rates.

This week’s special question asked AAII members to share their opinion about the Dow Jones industrial average crossing above 30,000 for the first time.

Just under two out of five respondents (37%) say that the all-time high for the Dow is meaningless and that “it’s just a number” with too much assigned importance. In other words, respondents within this group think that it is not an indicator of the future direction of the market. This compares to about 23% of respondents who say that the market is due for a correction. About 20% of respondents say that the new record for the Dow can be characterized as irrational exuberance of the frothy market. In addition, 17% of respondents say that they expect it to continue to increase and that we are at the starting point of a major bull market.

Here is a sampling of the responses:

  • “This is a reflection on the coronavirus vaccine prospects, the relatively strong economy that is struggling due to self-inflicted wounds from foolish governmental leaders, and the fact the presidential election is over (even if the results are still slightly in doubt).”
  • “It may continue to advance for a few months, however the entire market should zigzag down to a real correction reflecting a reality check of the true economic damage to the world financial and equity markets.”
  • “The Dow is not a true indicator of the market, thusly, its value is not an indicator of anything relevant. The S&P 500 is a slightly better indicator. The S&P 500 breaking above 3,600 is much more impressive.”
  • “Breaking this barrier indicates momentum is still there, regardless of the political results, and it looks like this momentum may carry the market to new highs in 2021! I believe it also signals strength in the new vaccines that are about to hit the market, and hopefully that will help return daily living to a more normal routine.”
  • “It’s concerning, to say the least, with the market at all-time highs, yet we are still in the midst of a deep economic recession. While I do believe that in late 2021 and 2022 we will see a global economic boom that we haven’t seen since the end of World War II, much of that economic prosperity is already being priced into the market. I’m waiting for a sharp correction sometime in the first quarter of 2021 before adding to my equity position.”

AAII Sentiment Survey

This week’s AAII Sentiment Survey results:

  • Bullish: 48.1%, down 1.0 percentage points
  • Neutral: 25.1%, down 3.2 percentage points
  • Bearish: 26.9%, up 4.2 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.

If you want to become an effective manager of your own assets and achieve your financial goals, consider a risk-free 30-day Trial AAII Membership.

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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