AAII Sentiment Survey: Neutral Sentiment Nears 40%

The percentage of individual investors describing their short-term outlook for the stock as “neutral” neared 40% in the latest AAII Sentiment Survey. Pessimism also rebounded while optimism pulled back.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 3.8 percentage points to 40.2%. Optimism remains above its historical average of 38.0% for the 25th week out of the past 30 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.9 percentage points to 39.1%. This is the highest reading since January 1, 2020 (40.9%). Neutral sentiment is above its historical average of 31.5% for the seventh consecutive week but just the eighth time this year.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 0.9 percentage points to 20.7%. Bearish sentiment is below its historical average of 30.5% for the 18th consecutive week.

At current levels, pessimism remains unusually low. Historically, 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 near the upper end of its typical historical range. The breakpoint between typical and unusually high is 39.8%.

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, valuations and the Biden administration’s initiatives.

In this week’s special question, we asked AAII members to share their thoughts about the so-called “meme stocks.” (AMC Entertainment, GameStop, BlackBerry, etc.)

Three out of 10 respondents (30%) say they felt that meme stocks were purely speculative and dangerous. Many within this group also describe investing in meme stocks as a form of gambling. An additional 13% of respondents maintain a cautionary outlook on meme stocks, citing them as foolish and teaching poor investing habits. Another 11% of respondents say that meme stocks pointed to negative market trends, indicating that these investments may lead to a speculative bubble or overall market volatility.

This compares to 23% of respondents who say that they had no specific knowledge or interest in these particular stocks as they don’t align with their investing goals. About 15% of respondents have a somewhat positive to completely positive outlook, saying that these types of investments could be rewarding if approached correctly.

Here is a sampling of the responses:

• “Gambling—pure and simple. Some will win, some will lose and not all will have a good time.”
• “Being a long-term buy and hold type of investor, these are not the kind of issues that are attractive to me.”
• “I think, if you can make a profit and not lose your shirt, then go for it.”
• “Foolish investments that are teaching bad habits to new young investors.”
• “Kind of scary actually. They are highly volatile, and I fear the volatility can transfer into regular stocks.”

See more Sentiment Survey results.