AAII Investor Update: Bearish Sentiment at a 4-week High

AAII Investor Update: Bearish Sentiment at a 4-week High

AAII Investor Update: Bearish Sentiment at a 4 Wk High

$DIA, $SPY, $QQQ, $VXX

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain flat or fall over the next 6 months. The survey period runs from Thursday (12:01a) to Wednesday (11:59p).

This week’s Survey results for the frame ended 27 July 2016, as follows:

Bullish: 31.3%, -4.2 points
Neutral: 40.3%, + 2.5 points
Bearish: 28.4%, + 1.7 points

Historical averages

Bullish: 38.5%
Neutral: 31.0%
Bearish: 30.5%

Commentary

Pessimism among individual investors about the short-term direction of the stock market is at a 4-week high, though continuing to remain below average, Neutral sentiment rose back above 40%, while optimism declined.

Bullish sentiment

Expectations that stock prices will rise over the next 6 months, fell 4.2% to 31.3%. The drop keeps optimism below its historical average of 38.5% for a 38th week runnning and for the 71st out of the past 73 weeks. Bullish sentiment remains within its typical historical range.

Neutral sentiment

Expectations that stock prices will stay essentially unchanged over the next 6 months, rose 2.5% to 40.3%. The rise puts Neutral sentiment back at an unusually high level. This is the 26th straight week that Neutral sentiment is above its historical average of 31.0%.

Bearish sentiment

Expectations that stock prices will fall over the next 6 months, rose by 1.7% to 28.4%. Pessimism was last higher on 29 June 2016 (33.4%). The historical average is 30.5%.

As noted last week, this is the just the 2nd time this year that optimism has stayed above 30% on consecutive weeks.

The comparatively higher level of Bullish sentiment comes as the major large-cap indexes trade at or near their record highs, though some individual investors have doubts about the ability of stocks to hold their current prices.

A lack of perceived viable investment alternatives, economic growth and upward momentum in stock prices is encouraging some individual investors about the short-term direction of stock prices.

Giving reason for caution or pessimism is global economic uncertainty, including Brexit, the prevailing level of valuations and disappointment with corporate earnings growth. The Presidential election and monetary policy are also impacting individual investor sentiment.

This week’s special question asked AAII members what industries or sectors they like right now.

Healthcare topped the list, named by 43% of all respondents.

Included in healthcare is biotech, which was specifically named by 11% of all respondents.

Technology ranked 2nd, listed by 30% of respondents. About 16% said financial and/or banking stocks. Tied for 4th place were utilities, energy, real estate and consumer staples, each listed by just under 11% of respondents. Several AAII members listed more than 1 industry or sector.

By Charles Rotblut, CFA

AAII Journal

Paul Ebeling, Editor

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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