AAII Sentiment Survey: Pessimism Falls to an Unusually Low Level

Pessimism about the short-term direction of the stock market fell to an unusually low level in this week’s AAII Sentiment Survey. Optimism rose above its historical average for the first time in six weeks, while neutral sentiment is at the upper end of its recent range.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 5.3 percentage points to 40.3%. Optimism was last higher on February 27, 2019 (41.6%). This is the first time bullish sentiment is above its historical average of 38.5% in six weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 2.6 percentage points to 39.3%. The increase extends the streak of range-bound readings (35.3% to 39.8%) to 11 consecutive weeks. Neutral sentiment remains above its historical average of 31.0% for the 12th time in 14 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 7.9 percentage points to 20.4%. Pessimism was last lower on February 27, 2019 (20.0%). This is the ninth time in 10 weeks that bearish sentiment is below its historical average of 30.5%.

Bearish sentiment readings below 20.7% are unusually low. Historically, the S&P 500 index has realized lower-than-average (3.8% versus 4.5%) and lower-than-median (4.2% versus 5.2%) six-month returns following such readings. The market has only declined 27% of the time following an unusually low bearish sentiment reading since the survey started in 1987.

Neutral sentiment is near the upper end of its typical range (22.9% to 40.0%). Bullish sentiment is well within its typical range.

This year’s rebound in stock prices has encouraged some individual investors, though others have concerns about its sustainability. Many individual investors are monitoring trade negotiations, though the impact varies by investor. Also having an influence are Washington politics (including President Trump and Democratic control of the House of Representatives), corporate earnings, the Federal Reserve, valuations and concerns about the pace of economic growth.

This week’s AAII Sentiment Survey results

• Bullish: 40.3%, up 5.3 percentage points
• Neutral: 39.3%, up 2.6 percentage points
• Bearish: 20.4%, down 7.9 percentage points

Historical averages:

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

Want to weigh in? Take the survey yourself and see results online at www.aaii.com/sentimentsurvey.

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See more Sentiment Survey results.