AAII Sentiment Survey: Lowest Pessimism Since January 2018

Bearish sentiment among individual investors about the short-term direction of the stock market dropped to its lowest level since January 2018. The latest AAII Sentiment Survey also shows a decrease in neutral sentiment and an increase in optimism.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 7.6 percentage points to 44.1%. Optimism is above its historical average of 38.0% for the first time in four weeks and the 24th week out of the past 29 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.0 percentage points to 36.2%. Neutral sentiment remains above its historical average of 31.5% for the sixth consecutive week and the seventh time this year.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 6.7 percentage points to 19.8%. Pessimism was last lower on January 3, 2018 (15.6%). Bearish sentiment remains below its historical average of 30.5% for the 17th consecutive week. 

At current levels, pessimism is unusually low. Historically, unusually low readings for bearish sentiment have been followed by below-average six- and 12-month returns for the S&P 500 index. Bullish and neutral sentiment 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 to share how spring’s volatility in the Nasdaq composite affected their outlook on the stock market. 

More than half of respondents (53%) say that they felt indifferent about the volatility and still had a neutral outlook on the market. Many within this group also say that day-to-day volatility is to be expected and they are focused on investing for the long term. This compares to 14% of respondents who say that they view the recent volatility as a negative indicator, pointing to increased uncertainty and an impending market decline. In addition, about 16% of respondents say that they feel relatively concerned about the volatility, with some beginning to move out of particular stocks. About 9% of respondents say that they had a positive outlook, as the volatility presented new opportunities in the stock market.

Here is a sampling of the responses:

• “It has not affected my outlook. I expect volatility and can use some of it to my advantage.”
• “Volatility typically warns of a change in direction of the market’s price level—in this case pointing to a decline.”
• “Moved out of Nasdaq stocks and into value stocks.”
• “Just more opportunity to find a well-priced tech stock.”
• “As a long-term investor, I try to ignore short-term volatility. It does tend to reinforce my feeling that the market is very ‘toppy.’”

See more Sentiment Survey results.