AAII Sentiment Survey: Pessimism Rises to a 15-Week High

Pessimism among individual investors about the short-term direction of the stock market rose to its highest level in 15 weeks. The latest AAII Sentiment Survey also shows optimism declining to its lowest level in 11 weeks.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 4.9 percentage points to 37.7%. Optimism is below its historical average of 38.0% for the first time this year.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded 1.0 percentage points to 24.0%. Neutral sentiment remains below its historical average of 31.5% for the 51st time out of the past 54 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 3.8 percentage points to 38.3%. Pessimism was last higher on October 7, 2020 (39.0%). Pessimism is above its historical average of 30.5% for the third time this year.

This week’s special question asked AAII members which factors are most influencing their six-month outlook for stocks.

Approximately 28% of respondents say that the country’s ability to manage the coronavirus pandemic and distribute the vaccine in the near future are the biggest influential factors on their market outlook. This compares to 22% of respondents who say that the new administration and its policies are the most influential factors. About 15% of respondents say that economic trends are influencing their sentiment. In addition, about 15% of respondents mention extremely high valuations. Other factors named include earnings reports (named by 7% of respondents) and economic stimulus efforts (named by 6% of respondents).

Here is a sampling of the responses:

• “A new president committed to solving pressing national problems, including normalizing international relations and standing.”
• “Bearish. Extremely high valuation, especially of the top tier technology companies that make up a large portion of the capitalization-weighted S&P 500 index, are likely to stage a correction in the first quarter of 2021.”
• “The market is definitely overbought. Stock valuations are too high. The only reason the market is up because there is nowhere else to put money.”
• “Expecting coronavirus vaccinations will allow the economy to get back-on-track results in optimistic conditions.”
• “The pandemic with respect to the extent of those who have received a vaccination, and its effect on the service economy. Increase in expectation of inflation and lack of spending.”
• “Valuations are crazy high, and they don’t reflect the pandemic weakness in the economy. Eventually, fundamentals are going to matter.”

See more Sentiment Survey results.