AAII Sentiment Survey: Optimism Extends Streak of Staying Above 50%

Optimism among individual investors about the short-term direction of the stock market extended its streak of staying above 50%. The latest AAII Sentiment Survey also shows a decline in bearish sentiment and higher levels of neutral sentiment.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 1.1 percentage points to 52.7%. Optimism is above its historical average of 38.0% for the 21st week out of the past 23 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 5.2 percentage points to 26.8%. Neutral sentiment remains below its historical average of 31.5% for the 62nd time out of the past 66 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 4.1 percentage points to 20.5%. Bearish sentiment is below its historical average of 30.5% for the 11th time this year.

Bullish sentiment is above 50% for the fourth time in five weeks. Bearish sentiment is in a range of 20.4% to 20.6% for the third time in five weeks. At current levels, optimism is unusually high, and pessimism is unusually low. Historically, both above-average readings for bullish sentiment and below-average readings for bearish sentiment have been followed by below-average six- and 12-month returns for the S&P 500 index. Neutral sentiment is back within its typical historical range.

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 how they would describe the current state of the housing market.

Just under half of respondents (45%) say that they think an overpriced bubble situation has hit the housing market. They believe housing is becoming overheated. This compares to 33% of respondents who say that it is currently a seller’s market due to pent-up demand and short housing supply. About 11% of respondents say that they think the current state of the housing market is causing material and labor inflation, especially for lumber prices. Another 8% of respondents say that they think the housing market will continue to move upward through at least the end of the year.

Here is a sampling of the responses:

• “Prices have increased due to limited supply and increased demand throughout the U.S.”
• “I believe it is too hot and will cool down within the next year. Housing can’t go up this much in the long term.”
• “Due to the pandemic, many people are reconsidering their housing situation and want to move. Demand has greatly increased, but supply is limited due to the pandemic, as well as construction time and labor. Thus, prices are jumping.”
• “Basic supply and demand combined with low interest rates. I don’t think it is a bubble. It makes sense when you look at the conditions.”
• “A high price bubble situation has hit the housing market again this time due to the coronavirus pandemic.”

See more Sentiment Survey results.