AAII Sentiment Survey: Bullish Sentiment Dips Below Average, Neutral Continues Uptrend

Optimism among individual investors about the short-term direction of the stock market fell below its historical average for the first time in seven weeks. Meanwhile, both neutral and bearish sentiment are higher.

Bullish sentiment, expectations that stock prices will rise over the next six months, dropped 4.0 percentage points to 36.2%. Optimism was last lower on October 28, 2020 (35.3%). This is the first time in seven weeks that bullish sentiment is below its historical average of 38.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.7 percentage points to 37.0%. Neutral sentiment remained above its historical average of 31.5% for the 11th time in 12 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.3 percentage points to 26.8%. Bearish sentiment remains below its historical average of 30.5% for the 23rd 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, valuations and the Biden administration’s initiatives.

In this week’s special question, we asked AAII members to share their thoughts about the pullback on bond yields.

Almost two out of five of respondents (39%) have negative comments about the pullback, citing concerns of inflation, low growth and low bond yields. Many respondents also say these low yields are adversely affecting retirees’ portfolios, as retired individuals may need income from safe-haven investments such as bonds.

This compares to 21% of respondents who indicate that they have no thoughts about the pullback or that it is in line with their expectations. Some respondents in this category also indicate that the low yield on bonds makes these investments unattractive and not worth the risk. About 16% of respondents say that they have a positive or more active mindset about the pullback, citing international investors looking for a higher yield and a potential increase in consumer spending. Finally, 12% of respondents say that they feel the pullback is temporary and some say that it indicates a sign of economic growth and recovery.

Here is a sampling of the responses:

• “Tougher for fixed income and retirement planning—I cannot depend on bond income. Will need to have either dividend-paying stocks or mutual funds or sell capital to pay the bills.”
• “I have very little (<1%) invested in bonds. So this has little effect on my portfolio.”
• “It will start affecting those on fixed income, particularly retirees, but will help those who are interested in purchasing real estate and possibly increase spending by consumers.”
• “The recovery will have times when it does not look perfect. Certain things will slow, others will pause. This is normal during a recovery. We have been spoiled by near-perfect policy and huge stimulus. It will take some time to get the economy on its feet. This is a transition to stability on its own. This is transitory.”

See more Sentiment Survey results.