AAII Sentiment Survey: Pessimism Drops Below 50%, Neutral Stays Low

Pessimism among individual investors about the short-term direction of the stock market is below 50% for the first time in four weeks according to the latest AAII Sentiment Survey. Neutral sentiment, meanwhile, continues to be at an extraordinarily low level.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 1.3 percentage points to 34.2%. Optimism has been below its historical average of 38.0% during nine out of the first 14 weeks of 2020.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.0 percentage points to 16.0%. Neutral sentiment remains below its historical average of 31.5% for the 11th time in 12 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 2.3 percentage points to 49.7%. The decrease ends of a streak of three consecutive weekly readings above 50%. The historical average is 30.5%.

This week’s increase was only enough to move neutral sentiment up to the 46th lowest reading out of more than 1,700 weekly results. Neutral sentiment was previously at 16.0% on August 31, 1990, October 19, 2006, and August 13, 2009.

Pessimism continues to be at an unusually high level (more than one standard deviation above the historical average). Historically, unusually high levels of bearish sentiment have had a weaker association with above-average returns for the S&P 500 index over the following six- and 12-month periods than unusually low levels of optimism. (Bullish sentiment remains within its typical historical range.)

The continued high level of pessimism reflects the ongoing bear market, the coronavirus pandemic and, to a lesser extent, the oil price cut announced by Saudi Arabia. Many—but not all—individual investors are using the downturn to look for buying opportunities among stocks. Other factors influencing AAII members’ sentiment include the November elections, corporate earnings, economic growth and valuations.

This week’s AAII Sentiment Survey results:

•  Bullish: 34.2%, up 1.3 percentage points
•  Neutral: 16.0%, up 1.0 percentage points
•  Bearish: 49.7%, down 2.3 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.