AAII Sentiment Survey: Highest Neutral Sentiment Since 2016

The percentage of individual investors describing their short-term outlook for stocks as “neutral” jumped to its highest level in three years. The latest AAII Sentiment Survey also shows declines in both optimism and pessimism.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.0 percentage points to 33.5%. The drop keeps optimism below its historical average of 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 5.7 percentage points to 46.3%. Neutral sentiment was last higher on May 25, 2016 (52.9%). This week’s increase keeps neutral sentiment above its historical average of 31.0% for the 14th time in 16 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 1.7 percentage points to 20.2%. Pessimism was lower on February 27, 2019 (20.0%). This is the 11th time in 12 weeks that bearish sentiment is below its historical average of 30.5%.

Neutral sentiment remains at an unusually high level (more than one standard deviation above the historical average) for a second consecutive week. Pessimism is now back at an unusually low level. Historically, unusually high readings for neutral sentiment have been followed by slightly better-than-average six-month returns in the S&P 500 index, while unusually low readings for pessimism have been followed by lower-than-average returns for the S&P 500. The relationship between high neutral sentiment and market outperformance has weakened over the past few years, while the relationship between low pessimism and market underperformance has held up.

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, particularly between the U.S. and China. Also having an influence are monetary policy, Washington politics (including President Trump), geopolitics, valuations, corporate earnings and the pace of economic growth.

This week’s AAII Sentiment Survey results:

• Bullish: 33.5%, down 4.0 percentage points
• Neutral: 46.3%, up 5.7 percentage points
• Bearish: 20.2%, down 1.7 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.