Automate Retirement Savings and Retirement

• The October AAII Journal has been posted to our website.


• Conference keynote speaker Jack Brennan provides some great insights on how to reach your financial goals in the new issue.


• Fellow conference speaker Ed Slott provides nine different examples to help you better understand the rules regarding inherited IRAs.


• On Wednesday, I’ll join some of my colleagues in sharing our favorite moments and key takeaways from the conference.

The results from the latest AAII Sentiment Survey saw pessimism rise to its highest level in a year. In addition, optimism moved toward the bottom of its typical historical range.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased 1.8 percentage points to 28.1%. This is the third consecutive week that bullish sentiment is below the historical average of 38.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose slightly by 0.2 percentage points to 31.1%. This minor uptick puts neutral sentiment only slightly under the historical average of 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, increased by 1.5 percentage points to 40.7%. Pessimism was last higher on September 30, 2020 (43.1%). This is the third consecutive week and the eighth time out of the last nine weeks that bearish sentiment is above the historical average of 30.5%.

Bearish sentiment is now at an unusually high level. Historically, unusually high levels of pessimism have been followed by above-average and above-median six-month returns in the S&P 500 index. Bullish sentiment, meanwhile, is at the bottom of its typical range. The breakpoint between typical and unusually low bearish readings is 28.0%.

The rise in pessimism comes as major indexes have pulled back from their record highs and experienced their first 2% daily drop in many months. Also playing a role are the return to normalcy from the coronavirus pandemic; monetary, fiscal stimulus and inflationary pressures; and earnings, valuations and the Biden administration’s initiatives.

In this week’s special question, we asked AAII members if they thought the Federal Reserve would be right to start tapering its bond purchases in November.

Nearly four out of five respondents (79%) say that they feel the Fed would be correct in tapering bond purchases. Many respondents feel that the primary reason tapering is necessary is to reduce market liquidity and inflation. By doing this, respondents hope that the market will adjust without any major interference from the Fed.

This compares to 10% of respondents who give a conditional response about what the Fed would do. One response highlights that slowing bond purchases may or may not help ease inflation. Responses in this category remark on the uncertainty of the situation and convey that there may not be one clear answer. About 8% of responses express that the Fed should not taper bond purchases. One of the main concerns is that it’s too early with the ongoing coronavirus pandemic.

Here is a sampling of the responses:

• “Yes. The economy seems to have rebounded nicely and inflation is probably going to continue above 2% annually.”
• “I think there is some optimism in the market, but not to a euphoric level. So, there is probably more room to run up.”
• “No, unless most supply chain issues are resolved, and unemployment levels are greatly reduced.”