AAII Investor Update: Neutral Sentiment is at a 2 Month High

AAII Investor Update: Neutral Sentiment is at a 2 Month High

AAII Investor Update: Neutral Sentiment is at a 2 Month 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 3 August 2016, as follows:

AAII Investor Update

Bullish: 29.8%, -1.5 points
Neutral: 43.4%, + 3.1 points
Bearish: 26.8%, + 1.6 points

Historical averages

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

Commentary

Expectations that stock prices will rise over the next 6 months, declined 1.5% to 29.8%. Optimism was last lower on 29 June 2016 (28.9%). This is the 39th week running, and the 72nd out of the past 74 weeks with a Bullish sentiment reading below its historical average of 38.5%.The percentage of individual investors describing their short-term outlook for stocks as “Neutral” is at its highest level in two months, according to the latest AAII Sentiment Survey. At the same time, Optimism is back below 30%. Pessimism is lower too.

Neutral sentiment

Expectations that stock prices will stay essentially unchanged over the next six months, rose 3.1% to 43.4%. Neutral sentiment was last higher on 8 June 2016 (44.3%). This week’s increase keeps nNeutral sentiment above its historical average of 31.0% for the 27th straigh week.

Bearish sentiment

Expectations that stock prices will fall over the next six months, declined 1.6 percentage points to 26.8%. The decrease keeps pessimism below its historical average of 30.5% for the fifth consecutive week.

Neutral sentiment s back at an unusually high level.

At the same time, fewer than 30% of individual investors describe their short-term outlook as “Bullish,” for the 1st time since the end of June. Concerns about valuations and the US Presidential election are having an impact, as well as headlines about the DJIA recent 9-day slide.

In addition to prevailing valuations and the election, global economic uncertainty and disappointment with corporate earnings growth are giving some individual investors reasons to be cautious or pessimistic.

Others feel that the perceived lack of viable investment alternatives, economic growth and generally upward momentum in stock prices will result in higher stock prices over the next 6 months.

This week’s special question asked AAII members what their comfort level is with the current valuations of stocks.

  1. 51% described valuations as being too high. Among the reasons cited were insufficient earnings growth to support the valuations, slow economic growth, and current valuations being higher than historical norms. Several respondents described themselves as “uncomfortable” and/or they thought that current monetary policy is inflating valuations.
  2. 14% expressed concern about the market’s short-term direction.
  3. 16% said stocks are fairly valued or said they are otherwise comfortable with valuations.
  4. 12% of respondents to this week’s special question described themselves as comfortable with current valuations or do not think prevailing valuations will hinder stocks from rising. Uncertainty surrounding the election was mentioned by many respondents.

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).

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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