AAII Sentiment Survey: Pessimism Falls to a Six-Week Low

The percentage of individual investors describing their short-term outlook as “bearish” is at a six-week low in the latest AAII Sentiment Survey. Optimism rebounded while neutral sentiment rose.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded 8.1 percentage points to 45.5%. Optimism is above its historical average of 38.0% for the 11th week out of the past 13 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.2 percentage points to 28.3%. Neutral sentiment remains below its historical average of 31.5% for the 53rd time out of the past 56 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 9.3 percentage points to 26.3%. Pessimism is below its historical average of 30.5% for the first time this year.

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.

This week’s special question asked AAII members to share their thoughts about the level of optimism being reflected in the stock market. 

Almost two out of five respondents (39%) say that there is too much optimism and that they believe there will be a correction. This compares to 30% of respondents who say that they are confident in the current level of optimism being reflected in the stock market. About 16% of respondents say that they are uncertain about the current level of optimism being reflected in the stock market.

Here is a sampling of the responses:

• “Optimism is being fueled by the government giving away money. It’s like we are giving money to ourselves that we will have to pay back in the form of inflation, and the inflation ‘interest rate’ is very high.”
• “Optimism has been retreating, so I think the market will not yet correct in the near future.”
• “Optimism is a reflection of expectations for the economy to grow at some level in the next six to nine months instead of being flat to negative.”
• “Recovery optimism. When the masses come out from under this pandemic, it’s euphoria. Nine to 12 months from now, reality will return, and I expect more rational stock market levels to return bringing on a correction of 15% to 25%.”

See more Sentiment Survey results.