AAII Sentiment Survey: Neutral Sentiment Rises to an Eight-Week High

The percentage of individual investors describing their short-term outlook as “neutral” reached an eight-week high in the latest AAII Sentiment Survey. Meanwhile, pessimism fell to an eight-week low.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 1.1 percentage points to 45.9%. Optimism is above its historical average of 38.0% for the 13th week out of the past 15 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.7 percentage points to 30.3%. Neutral sentiment was last higher on December 23, 2020 (34.4%). Nonetheless, neutral sentiment remains below its historical average of 31.5% for the 55th time out of the past 58 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 1.6 percentage points to 23.8%. Pessimism was last lower on December 23, 2020 (22.0%). Bearish sentiment is below its historical average of 30.5% for the third 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.

For this week’s special question, we asked AAII members how the size of the next stimulus package would impact their outlook for stocks.

Nearly two out of five respondents (39%) say that the greater the size of the next stimulus package, the better their outlook for stocks would be. This compares to 27% of respondents who say that the size of the next stimulus package will have little to no impact on their outlook for stocks. Many within this group also say that they believe a significant stimulus package is probably already priced into the stock market, thus the impact will be nominal. About 15% of respondents say that they think the stimulus will have a short-term upward impact followed by a long-term downward impact. In addition, about 11% of respondents say that the size of the next stimulus package will have a negative impact on their outlook for stocks.

Here is a sampling of the responses:

• “The greater the size of the package, the better the outlook for stocks. The spending will pump up profits and share prices.”
• “Over the short term, a boost. However, the U.S. debt and our ability to pay off our debtors will continue to burden this nation, making us more dependent on China and other debt-holders and ultimately weaken our economy in the long term.”
• “Whether considered a good thing or not, I feel larger stimulus checks would be a factor in propping the markets up for a time. This assumes that the Fed does not elect to raise rates.”
• “The bigger, the better for stock prices. The more money in circulation, the more revenue companies are likely to make, which should eventually feed the bottom line of increased profits.”
• “They will go through the roof. Then we will have real bad inflation. Too much money chasing too few goods. It will be very bad.”

See more Sentiment Survey results.