AAII Sentiment Survey, 14 December 2016
$DIA, $SPY, $QQQ
The AAII Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market short term; individuals are polled from the AAII Website on a weekly basis.
Only 1 vote per member is accepted in each weekly voting period.
This week’s results
Bullish: 44.7%, +1.5 points
Neutral: 23%, – 7.4 points
Bearish: 32.3%, +5.8 points
There are 2 questions investors may have following last week’s FOMC rate hike.
- What happens next?
- What do I do now?
Do not put too much faith into the forecasts and enjoy the marginally higher level of interest income, but do not make big changes.
I will expound on both answers.
In regard to the 1st question, a bit of context is useful. The rate increase was just the 2nd in a span of more than 10 years. As you probably recall, a 25-bpts (0.25%) increase was announced last December.
What you may not remember is that the 2nd most recent increase was announced way back on 29 June 2006. Between then and now, there has been a large number of forecasts proven to be wrong and a large number of forecasters who kept making incorrect forecasts.
Even the FOMC members haven’t displayed much in the way of soothsaying skills.
While the market has rallied since the US election, there are structural issues in the economy that cannot be immediately fixed.
President Elect Donald Trump’s spending and tax plans will face early tests when the debt ceiling agreement expires in March and the current spending authorization expires in April. While some regulatory changes could happen quicker, others will likely require the rewriting of rules. None of this is to say that economic growth will not accelerate, but rather to say it is not certain that growth will accelerate or by how much.
From a portfolio perspective, it’s best to stick to a long-term plan.
Making changes based on what you expect to happen leaves you exposed to tactical errors. Such errors often have a far more damaging impact on your wealth than any short-term drag caused by your long-term strategy not being optimal for the prevailing environment.
The Hare always looks enticing, but it’s often the Tortoise that does best in the realm of investing.
This is not to say that you shouldn’t make any changes. If you’ve loaded up on utility and consumer stocks in a quest for dividend income, diversify.
Our Dividend Investing portfolio holds shares of financial, technology, travel and chemical companies, for instance. If you haven’t looked at your portfolio’s allocation in a long while, see if it is still within, say, a 5% range of your target. If you are close to retirement, build up short-term reserves from which to withdraw if you don’t have enough guaranteed income to cover your expenses. The Key is to make changes that will keep you on your long-term plan, and avoid making those changes based on what you think might happen.
Beyond your investments, review your savings accounts.
The rate hike should boost the amount of interest paid on your cash savings, though not by much. You may realize a bigger benefit by moving your account to a bank paying a higher interest rate.
For instance, Discover makes FDIC-insured savings accounts paying a little over 1% available to AAII members. A handful of other banks pay similar levels of interest rates, though just about all are online.
If you prefer visiting a local branch Vs banking online, call around your local area to see what is being offered. Be sure to ensure that any bank account you open is FDIC-insured (NCUA-insured for credit unions) and the rate is not a teaser rate. Also beware that if the interest rate sounds too good to be true, it probably is.
Wishing you prosperity,
Charles Rotblut, CFA
Paul Ebeling, Editor