AAII Sentiment Survey: Neutral Sentiment Drops to 6-Week Low

The percentage of individual investors describing their outlook for stocks as “neutral” pulled back from its recent highs in the latest AAII Sentiment Survey. At the same time, bearish sentiment rebounded after having previously been at an unusually low level.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 0.9 percentage points to 41.1%. Optimism remains above its historical average of 38.0% for the 26th week out of the past 31 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, dropped 6.4 percentage points to 32.7%. This is the lowest reading since May 6, 2021 (32.5%). Nonetheless, neutral sentiment is above its historical average of 31.5% for the eighth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 5.5 percentage points to 26.2%. Even with the increase, pessimism remains below its historical average of 30.5% for the 19th consecutive week.

All three indicators are within their typical historical ranges. Bearish sentiment had been at an unusually low level during the two previous weeks.

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.

This week’s special question asked AAII members to share how the passage of an infrastructure bill would impact their outlook for the stock market.

Two out of five respondents (40%) say that the passage of an infrastructure bill would positively impact their outlook on the stock market. Many within this group say that such legislation would reflect a healthier economy and many infrastructure stocks would rise in price as a result. In addition, about 10% of respondents had a conditional outlook on a proposed infrastructure bill, saying that it could be a positive if paid for in an effective manner and spent on the right things.

This compares to 19% of respondents who say that an infrastructure bill would have minimal to no impact. About 16% of respondents have a negative outlook, saying that an infrastructure bill would be inflationary. Approximately 8% of respondents say that an infrastructure bill would yield mixed results such as short-term growth but potential long-term inflation.

Here is a sampling of the responses:

• “Spending on infrastructure would be bullish for the entire economy and I would expect stock prices to reflect both the increase in business activity and the reduction of ‘friction’ costs that improved infrastructure would have on the cost of doing business.”
• “Neutral. I think that some version of an infrastructure bill is already priced into the market.”
• “I believe if the present proposal were passed, the stock market would take a downturn. Inflation would be a big factor.”
• “If it were paid for, it should help the economy for many years. If not paid for, it depends largely on the growth elements of infrastructure contents.”
• “It would provide a temporary boost but be a serious long-term negative.”

See more Sentiment Survey results.