AAII Sentiment Survey: Neutral Sentiment Surges To A Six-Week High

Summary

• Bullish: 38.9%, down 4.5 percentage points.
• Neutral: 33.9%, up 10.7 percentage points.
• Bearish: 27.2%, down 6.1 percentage points.

The results from the latest AAII Sentiment Survey show a jump in neutral sentiment. In addition, both optimism and pessimism declined.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.5 percentage points to 38.9%. Even with the decline, this is the third consecutive week that optimism is above its historical average of 38.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, sharply rose by 10.7 percentage points to 33.9%. This is a six-week high. Neutral sentiment is above its historical average of 31.5% for the 17th time in 20 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined by 6.1 percentage points to 27.2%. This is the first time in six weeks that bearish sentiment is below its historical average of 30.5%.

At current levels, all three readings are within their typical historical ranges.

The return to normalcy from the coronavirus pandemic, monetary and fiscal stimulus and inflationary pressures are influencing individual investors’ outlook for stocks. Other factors include earnings, valuations and the Biden administration’s initiatives.

In this week’s special question, we asked AAII members to share their thoughts about the level of optimism being reflected in the stock market.

Nearly three out of 10 respondents (29%) say that they feel optimism is too high and express concerns of a potential bubble bursting soon. An additional 22% say that they are more cautious. Their reasons include a belief that the market is optimistic without any viable reason and they have expectations for an impending correction. An additional 20% of respondents express negative sentiment regarding market optimism.

Conversely, 20% of respondents express a positive outlook on market optimism.

Here is a sampling of the responses:

• “I believe it is too high, but we are in uncharted territory with the entry of so many individual investors. I’m not sure if history has any relevance, with this new group participating that has so little experience and knowledge as well as many barriers to investing.”
• “The bull market may continue for the rest of the year. I believe we are overdue for a correction in 2022.”
• “I think there is some optimism in the market, but not to euphoric levels. So, there is probably more room to run up.”
• “Inflation is not going away as the Federal Reserve presumes, so the market will pull back.”
• “Strong economy but high valuations and several potential risks = neutral.”

This week’s AAII Sentiment Survey results:

• Bullish: 38.9%, down 4.5 percentage points
• Neutral: 33.9%, up 10.7 percentage points
• Bearish: 27.2%, down 6.1 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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