The AAII Sentiment Survey for the Frame Ended 5 October 2016
$DIA, $SPY, $QQQ, $VXX, $OIL
The AAII Investor Sentiment Survey measures the percentage of individual investors who are Bullish, Bearish, and Neutral on the US stock market for the next 6 months,
The AAII Investor Sentiment Survey has become a widely followed measure of the mood of individual investors. The weekly survey results are published in financial publications and are widely followed by market strategists, investment newsletter writers and other financial professionals.
Data represents what direction members feel the stock market will be in next 6 months.
Investor Update: Pessimism rose to its highest level since last June, while Neutral sentiment fell to a level not seen since last February.
This week’s results
Bullish: 28.8%, + 4.8 pts
Neutral: 43.3%, + 4.4 pts
Bearish: 27.9%, – 9.2 pts
The percentage of individual investors describing their short-term outlook for stocks as Neutral rose to a 2-month high as pessimism plunged in the latest AAII Sentiment Survey. Optimism, though still low, rebounded to a 4-week high.
Expectations that stock prices will rise over the next 6 months, rose 4.8% to 28.8%. This is the 48th week rnning and the 81st out of the past 83 weeks with a Bullish sentiment reading below its historical average of 38.5%.
Expectations that stock prices will stay essentially unchanged over the next 6 months, jumped 4.4% to 43.3%. Neutral sentiment was last higher on 3 August 2016 (43.4%). The rise keeps Neutral sentiment above its historical average of 31.0% for the 36th straight week.
Expectations that stock prices will fall over the next 6 months, plunged 9.2% to 27.9%. The drop puts pessimism at a 7-week low. The drop also puts pessimism below its historical average of 30.5% for the 1st time in 4 weeks.
This week’s drop in pessimism is the largest weekly decrease since 10 February 2016, when Bearish sentiment fell 10.9%. We have also seen big weekly increases this year, with pessimism rising by 14.0% on 10 February, by 9.7% on 15 June and by 7.4% on 14 September. The median weekly change North or South for Bearish, and Bullish, sentiment over the life of the survey is about 5.0%.
The pullback in bearish sentiment occurred after pessimism hit 38.3% 2 weeks ago.
A settling down of market volatility appears to have helped calmed the nerves of anxious investors. Nonetheless, some investors still have concerns about the possibility of the stock market experiencing a larger drop than what occurred in mid-September.
Further adding to pessimism about the short-term direction of stock prices are concerns about valuations, global economic uncertainty and the pace of corporate earnings growth.
Giving other individual investors reason for optimism are this summer’s rise in stock prices, the perceived lack of investment alternatives, corporate earnings, low/stable energy prices and slow, economic growth.
This week’s special question asked AAII members how much influence the election is having on their expectations for the stock market relative to other factors such as earnings growth, the economy, the Fed, valuations, international factors, etc.
- 49% said that the US Presidential election is either having just a small/minimal impact or no impact on their stock market expectations. Several said that other factors matter more.
- 23% said that the election is having a large influence. Many of these investors are bracing for a drop in stock prices, or at least increased volatility.
- 5% say that the election is creating uncertainty
- 4% said that the election is having some influence on their market outlook. We included the phrase “regardless of which candidate you support” in the actual question and most respondents did not state which candidate they favor.
By Charles Rotblut, CFA
Paul Ebeling, Editor