AAII Sentiment Survey: Neutral Sentiment at Highest Level Since January 2020

Neutral sentiment among individual investors about the short-term direction of the stock market rose to its highest level since January 2020. The latest AAII Sentiment Survey also shows an increase in bullish sentiment and a decrease in bearish sentiment.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 0.5 percentage points to 37.0%. Optimism is below its historical average of 38.0% for the second time in 15 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 0.2 percentage points to 36.7%. Neutral sentiment was last higher on January 8, 2020 (37.0%). Neutral sentiment remains above its historical average of 31.5% for the fourth consecutive week and the fifth time this year.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.7 percentage points to 26.3%. Bearish sentiment remains below its historical average of 30.5% for the 15th time this year.

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

The return to normalcy from the coronavirus pandemic, monetary and fiscal stimulus and inflationary pressures are influencing individual investors’ outlook for stocks. Other factors include earnings, the Biden administration’s initiatives and valuations.

In this week’s special question, we asked AAII members how inflation is influencing their sentiment about the stock market.

Almost two out of five respondents (39%) say that inflation is having little to no impact on their market sentiment. Many within this group also say that they expect the inflation to be temporary due to confidence related to coming out of the pandemic. This compares to 32% of respondents who say that they are more cautious and shifting to a more defensive strategy, as they expect the market to experience a correction. In addition, about 11% of respondents say that they are shifting away from stock investments and more toward safe-haven investments like bonds, certificates of deposit (CDs) and other investments that should benefit from rising interest rates. About 9% of respondents say that they think hikes in inflation will cause the market to go up and that they are in favor of equities.

Here is a sampling of the responses:

• “Given that the government stimulus increased, inflation is inevitable. This increase will cause a flow of cash out of equities into bonds. This will result in a +20% market correction.”
• “It makes me reluctant to invest more money in the near future. I would like to know more about whether the inflation is transitory or more permanent.”
• “I believe that all the chatter about rapidly rising inflation is way overblown. I think inflation will be modest and within the ranges forecast by the Federal Reserve.”
• “Not much. I think inflation has the potential to push stock prices up, or down, depending on the company and depending on investor sentiment. Since I have no ability to predict how that will pan out, I don’t factor it heavily into my sentiment.”

See more Sentiment Survey results.