AAII Sentiment Survey: Neutral Rises to a Nine-Week High

The percentage of individual investors describing their short-term outlook as “neutral” reached a nine-week high in the latest AAII Sentiment Survey. Meanwhile, pessimism rose while optimism fell.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.7 percentage points to 40.3%. Optimism is above its historical average of 38.0% for the 14th week out of the past 16 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 4.1 percentage points to 34.4%. Neutral sentiment was last at this level on December 23, 2020 (34.4%). Nonetheless, neutral sentiment is above its historical average of 31.5% for the first time in nine weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.5 percentage points to 25.3%. Bearish sentiment is below its historical average of 30.5% for the fourth time this year.

This is just the fourth time over the past 14 months that neutral sentiment is above its historical average. 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 to share their thoughts about GameStop Corp. (GME) and the stock’s big moves attributed to Reddit’s WallStreetBets discussion board.

Two out of five respondents (40%) say that the recent stock market volatility after the fight with GameStop short-sellers shows how a large number of investors can contribute to irrational exuberance and speculation. Many within this group also say that the WallStreetBets board allowed some individual investors to engage in collusion. This compares to 27% of respondents who say that the stock market has turned into a casino and that their outlook for the market is not impacted by the crazy movement of one stock. In addition, about 11% of respondents say that this proves that more regulation is needed for both hedge funds and individual investors. About 22% of responses are classified as “other” since they were too varied to be categorized in one or more groups.

Here is a sampling of the responses:

• “It was a surprise and introduced another way for investors to participate. In time, it will be regulated and challenged by many large firms. It also brought to light some significant abuses of the system on many fronts.”
• “Players looking for a free ride. Some win, some lose and some get slaughtered. It will end badly. The market gives you no free lunch and is a self-correcting mechanism. This too shall pass. Let the bleeding begin.”
• “Pure speculation and greed, type of stock I would stay away from, a few people made a huge amount of money to the detriment of lots of investors. And it is about to repeat itself, as the stock somehow is going back up with no real valid data/information.”
• “I owned GameStop shares several years ago and sold it when I realized that game producers were moving to a subscription/download model. I believe that to still be true. The WallStreetBets board prompted individual investors to engage in a pump-and-dump scheme in my opinion. Individual investors can participate in these types of events, but it is a buyer beware situation. In this case, GameStop is still a bad investment.”

See more Sentiment Survey results.