AAII Sentiment Survey: Neutral Sentiment Falls to Lowest Level Since 2018

The percentage of individual investors describing their short-term outlook for stocks as “neutral” is at its lowest level in more than 14 months. The latest AAII Sentiment Survey also shows a big rebound in optimism and slightly higher pessimism.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 8.3 percentage points to 38.7%. The increase offset much, but not all of, last week’s decrease. The historical average is 38.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 8.8 percentage points to 21.6%. Neutral sentiment was last lower on December 26, 2018 (18.2%). This week’s drop keeps neutral sentiment below its historical average of 31.5% for the seventh time in eight weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 0.5 percentage points to 39.6%. Pessimism is above its historical average of 30.5% for the fourth time in six weeks.

Neutral sentiment is at an unusually low level (more than one standard deviation below the historical average). Historically, such readings have been followed by below-average and below-median returns for the S&P 500 index over the following six- and 12-month periods. This historical evidence is influenced by low readings recorded during the early 1990s recession, the dot-com bubble burst and the financial crisis.

Pessimism moved closer to the upper end of its typical range. Readings above 39.8% are unusually high.

Our survey period runs from Thursday through Wednesday, with reminders to take the survey emailed out to respondents on Mondays.

The market’s volatility and COVID-19 (coronavirus) were front and center during the survey period. As the results of this week’s special question show, the responses by individual investors were mixed. Other factors influencing individual investors’ sentiment include the November elections, corporate earnings, economic growth and valuations.

This week’s AAII Sentiment Survey results:

• Bullish: 38.7%, up 8.3 percentage points
• Neutral: 21.6%, down 8.8 percentage points
• Bearish: 39.6%, up 0.5 percentage points

Historical averages:

• Bullish: 38.0%
• Neutral: 31.5%
• 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.