AAII Sentiment Survey: Pessimism Rises to 11-Week High

Pessimism among individual investors about the short-term direction of the stock market rose to its highest level in 11 weeks. The latest AAII Sentiment Survey also shows a decline in bullish sentiment and higher levels of neutral sentiment.

Bullish sentiment, expectations that stock prices will rise over the next six months, dropped 10.1 percentage points to 42.6%. Bullish sentiment was last lower on March 3, 2021 (40.3%). Optimism is above its historical average of 38.0% for the 22nd week out of the past 24 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 4.9 percentage points to 31.8%. Neutral sentiment was last higher on March 3, 2021 (34.4%). Neutral sentiment remains below its historical average of 31.5% for the 63rd time out of the past 67 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, increased 5.2 percentage points to 25.7%. Bearish sentiment was last higher on February 10, 2021 (26.3%). Bearish sentiment is below its historical average of 30.5% for the 12th time this year.

At current levels, all three sentiment readings are within their typical historical ranges.

This week’s special question asked AAII members which factors are most influencing their six-month outlook for stocks. Some respondents named more than one factor.

One out of five respondents (20%) say that indications of recovery from the coronavirus pandemic are influencing their outlook for stocks. Likewise, 20% of respondents name the Federal Reserve’s loose monetary policy spending and accelerating national debt as the most influential factor.

This compares to 14% of respondents who name increased possibility of higher capital gains taxes. In addition, about 14% of respondents name inflationary news and pressures. Other factors include earnings results (11% of respondents) the Biden administration’s policies (9%) and high valuations (8%).

Here is a sampling of the responses:

• “Increase in both corporate and personal income taxes will have a negative impact on the stock market.”
• “The administration’s push for additional spending, stirring of inflation and the Fed’s apparent willingness to tolerate it.”
• “Earnings growth, infrastructure investment and coronavirus vaccination percentages.”
• “A tug of war between an economy moving up strongly and the already built-in expectations that it would move up strongly; great results regarding corporate profits versus already high expectations for improving corporate profitability; great current data versus fears of overheating leading to inflation and higher interest rates. The market will go in circles, eventually getting nowhere—for now.”
• “Pandemic recovery and a new approach to our infrastructure. New ideas in our government views on improving the average person’s life. The stimulus monies will move our country for the better.”

See more Sentiment Survey results.