AAII Sentiment Survey: Pessimism Rises to an 11-Week High

Pessimism among individual investors about the short-term direction of the stock market rose to its highest level in 11 weeks. Optimism, though lower than the last reading, remained above average.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 2.6 percentage points to 42.5%. Optimism is above its historical average of 38.0% for the 10th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 0.1 percentage points to 23.0%. Neutral sentiment remains below its historical average of 31.5% for the 50th time out of the past 53 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.7 percentage points to 34.5%. Pessimism was last higher on October 28, 2020 (35.3%). Pessimism is above its historical average of 30.5% for the second time this year.

Bullish sentiment is within its typical range. However, it remains above 40% for the 10th reading week. This is the longest consecutive streak of such readings since an eight-week stretch between December 14, 2017, and January 31, 2018.

The rollout of the coronavirus vaccines has helped to improve the outlook of many individual investors. The stock market’s momentum is also having an influence on sentiment. Concern about the shorter-term trends in coronavirus cases and the resulting economic impact remain, however. Also playing a role are the new presidential administration and the Democrats’ control of the Senate, the rising level of national debt, valuations and interest rates.

Due to a software error, the results for the survey period ending on January 13, 2021, could not be tabulated. The data for the previous week was adjusted to reflect results from the period of December 31 through January 4. The changes in bullish, neutral and bearish sentiment reflect the difference between this week’s reading and the reading recorded for the survey period ended on January 4.

This week’s special question asked AAII members to share their thoughts about the rise in bitcoin’s price over the past six months.

Slightly more than two out of five respondents (41%) say that they think the rise in bitcoin is unsustainable and that the cryptocurrency will likely crash in the near future. Many within this group compare the rise in bitcoin to the Dutch tulip bulb mania. About 17% of respondents think bitcoin will continue to rise. About 15% of respondents say that they think bitcoin is very risky. In addition, about 16% of respondents say that they do not understand the concept behind bitcoin.

Here is a sampling of the responses:

• “As long as people believe in it, it will go up very high. If their belief is shaken, then it will crash like it was a bubble.”
• “Foolish, I have been buying tulips instead.”
• “Irrational exuberance. While bitcoin can be somewhat compared to owning gold, it is a fabricated store of wealth and as such really has nothing behind it to justify its valuation.”
• “Excess money printed by the Federal Reserve and stimulus by Congress needs to go somewhere. Bitcoin shares are limited in number and there is the classic fear of missing out (FOMO) surge in buying. The rally in bitcoin could be killed by a word or two from the U.S. Treasury or another part of government like the IRS. I won’t be buying any bitcoin although I could benefit if any part of it is real by ownership in PayPal Holdings Inc. (PYPL).”

See more Sentiment Survey results.