AAII Sentiment Survey: Optimism Pulls Back

Optimism among individual investors about the short-term direction of the stock market pulled back to a four-week low. The latest AAII Sentiment Survey also shows neutral sentiment at a four-week high.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.1 percentage points to 45.8%. Optimism is above its historical average of 38.0% for the 18th week out of the past 20 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased 2.5 percentage points to 31.0%. Neutral sentiment remains below its historical average of 31.5% for the 59th time out of the past 63 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.6 percentage points to 23.2%. Bearish sentiment is below its historical average of 30.5% for the eighth time this year.

At current levels, all three sentiment readings are back within their typical historical ranges. Last week, bullish sentiment was unusually high and bearish sentiment was unusually low.

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 which industries or sectors they think are attractive buying opportunities in the current market environment. Several respondents provided more than one response.

Approximately 17% of respondents list technology stocks, followed by industrial companies being favored by 13% of respondents. This compares to 12% of respondents who think the health care sector is an attractive buying opportunity and 11% of respondents who say that basic materials and commodity companies are attractive. In addition, about 8% of respondents highlight the financials sector and 8% of respondents are liking the energy sector.

Other sectors and industries named include: consumer cyclicals (named by 6% of respondents); travel (named by 5% of respondents); and banks (named by 4% of respondents).

Here is a sampling of the responses:

• “Cyclical and materials as well as beaten-down stocks affected most by the coronavirus but have the financial ability to survive. I would avoid, for now, travel stocks including cruises which may have more difficulties to overcome. But hotels and restaurants are opportunities.”
• “I believe innovative health care companies will continue to perform well. Bonds are on their way down in price as yields rise. I think the ‘hot’ names are due for a rest and we may see more of the old line industrial names with strong balance sheets rise over the next several months.”
• “It is hard to say because of high current stock prices, but I think both money center and regional banks will benefit from slowly rising interest rates. And selected small-cap industrials like Miller Industries will see its customers return to spending on their capital needs resulting in greater sales.”
• “With the recent pull back in some large tech stocks, they seem to be at attractive levels again.”

See more Sentiment Survey results.