AAII Sentiment Survey: Neutral Sentiment Rises as Bearish Sentiment Declines

Neutral sentiment extended its streak of above-average readings to nine consecutive weeks. The latest AAII Sentiment Survey also shows declines in optimism and pessimism.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 0.7 percentage points to 40.4%. Even with the decline, optimism remains above its historical average of 38.0% for the 27th week out of the past 32 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.5 percentage points to 36.3%. Neutral sentiment is above its historical average of 31.5% for the ninth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 2.8 percentage points to 23.3%. Bearish sentiment is below its historical average of 30.5% for the 20th consecutive week.

At current levels, all three 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 to share how they felt about the Federal Reserve continuing to wait until 2022 or 2023 before raising interest rates.

Nearly two out of five respondents (39%) say that they disagreed with the Federal Reserve’s strategy to delay the raising of interest rates. Many within this group say that there was already evidence present pointing to inflation and that the Federal Reserve needs to take action now in order to avoid an extremely inflationary economy.

This compares to 31% of respondents who say that the Federal Reserve’s decision to wait was the correct one, as this allows them time to analyze more market data and metrics that are currently unavailable. About 15% of respondents are skeptical of the Fed’s announcement, as many say that the Federal Reserve would act sooner than stated and they would take action regardless of the timeframe. In addition, about 8% of respondents are indifferent about the Fed’s decision to wait and say they were more focused on what they could control in the near future, such as the return on their portfolios.

Here is a sampling of the responses:

• “I think the Fed is behind the curve and needs to be raising rates now and adjusting the money supply to rein in inflation.”
• “I think a wait-and-see approach is warranted. The reopening of America will be a bumpy ride considering labor availability and the prospect of coronavirus variants. Such volatility makes data used for determining interest rate policy less than reliable.”
• “That is what they are saying now but it can change depending on what happens in the next few months.”
• “I do not change my asset allocation based on daily news or how I ‘feel’ about it. I select an allocation that I can live with no matter what happens. I am a long-term investor.”

See more Sentiment Survey results.