AAII Sentiment Survey: Optimism Falls to a 13-Week Low

Optimism among individual investors about the short-term direction of the stock market fell to its lowest level in 13 weeks. The latest AAII Sentiment Survey also shows a decrease in pessimism and an increase in neutral sentiment.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.3 percentage points to 37.4%. Bullish sentiment was last lower on October 28, 2020 (35.3%). Optimism is below its historical average of 38.0% for the second consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.0 percentage points to 27.1%. Neutral sentiment remains below its historical average of 31.5% for the 52nd time out of the past 55 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 2.7 percentage points to 35.6%. Pessimism is above its historical average of 30.5% for the fourth consecutive week.

At current levels, all three sentiment readings are within their typical historical ranges.

The ongoing coronavirus pandemic, including the distribution of vaccines, continues to have a big influence on individual investors’ outlook for the stock market. Other factors include the new administration’s policies, economic trends, the current level of valuations and economic stimulus.

In this week’s special question, we asked AAII members for their thoughts about the Federal Reserve’s decision to maintain its current monetary policy.

Slightly more than half of all respondents (51%) say that they agree and that the Federal Reserve has little choice but to continue with the current monetary policy. This compares to 38% of respondents who say that they are concerned about the consequences of this policy in the long run. Many respondents in this group also say that when rates eventually go up, it could have a devastating impact on the economy. About 7% of respondents say that the Fed’s policy is good for the market and equity holders but bad for savers.

Here is a sampling of the responses:

• “We absolutely need to print money to maintain our economy at this time. This pandemic is the type of situation where increased debt spending is warranted. However, our government has been increasing the deficit through all the good years since 2009. After the pandemic is under control, the deficit must first be eliminated and then we must begin to reduce the debt.”
• “I think the Fed has to maintain its current monetary policy. Due to the unemployment rate, rate of business closures and evictions being as high as they are, any increase in interest rates would further harm the economy.”
• “Trouble—holding rates so low and printing more money for economic stimulus has been practiced for too long.”
• “They have no choice and any decision to taper their bond buying will trigger market panic at this time.”
• “Smart policy considering that we are still in a pandemic! A little inflation later on wouldn’t be the worst thing. Remember according to the ‘cleanest dirty shirt’ theory the U.S. is still the best place to have your money. This helps the dollar and would mitigate inflation.”

See more Sentiment Survey results.