AAII Sentiment Survey: Optimism Rises to a 16-Week High

The percentage of individual investors describing their short-term outlook as “bullish” reached a 16-week high in the latest AAII Sentiment Survey. Meanwhile, both pessimism and neutral sentiment fell.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 9.2 percentage points to 49.4%. Bullish sentiment was last higher on November 11, 2020 (55.8%). Optimism is above its historical average of 38.0% for the 15th week out of the past 17 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 7.4 percentage points to 27.1%. Neutral sentiment remains below its historical average of 31.5% for the 56th time out of the past 60 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 1.8 percentage points to 23.5%. Pessimism was last lower on December 23, 2020 (22.0%). Bearish sentiment is below its historical average of 30.5% for the fifth time this year.

Bullish sentiment is now at an unusually high level (more than one standard deviation above its historical average). It is above the breakpoint between typical and unusually high readings of 48.0%. Historically, such readings have been followed by lower-than-average six- and 12-month returns for the S&P 500 index.

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 to share their thoughts about fourth-quarter earnings.

A little more than half of respondents (55%) describe fourth-quarter earnings as being better than expected. Many within this group say that the positive earnings for the quarter demonstrate the market’s and economy’s recovery from the coronavirus pandemic. This compares to 21% of respondents who say that the results from the fourth quarter were mixed across different industries. In addition, about 8% of respondents say that fourth-quarter earnings were lower than expected.

Here is a sampling of the responses:

• “Better than expected for the stay-at-home stocks, good for the industrials. Real estate investment trusts (REITs) were punished.”
• “They seem to be doing better than most people thought they would. The first quarter will tell.”
• “As the economy opens, revenues and earnings will improve, especially in ‘nonessential’ businesses, who have been hurt the most due to the shutdown.”
• “Not surprising given the fact that the market is looking forward to the end of the pandemic but held down by the elevated unemployment rate.”
• “A mixed bag of lower actual earnings from the prior year but better than analyst expectations. Companies are hesitant to forecast 2021 sales and earnings due to the coronavirus pandemic’s impact on the economy. We may be in for an ugly surprise in 2021, then a positive 2022.”
• “Industry dependent. Strong retail, strong manufacturing, neutral financial, weak tech and weak media, all compared to previous year performance.”

See more Sentiment Survey results.