AAII Sentiment Survey: Neutral Sentiment Drops

The percentage of individual investors describing their outlook for stocks as “neutral” plunged in the latest AAII Sentiment Survey, reversing the upward trend of the past four weeks. Pessimism rose by a similar magnitude and is now above its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 0.1 percentage points to 36.1%. This is the fourth consecutive week that optimism is below the historical average.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, dropped 7.5 percentage points to 32.2%. Even with the sizable decline, neutral sentiment remains above its historical average of 31.5% for the fifth consecutive week and the 14th time out of the past 15 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose sharply by 7.6 percentage points to 31.7%. Pessimism was last higher on February 3, 2021 (35.6%). This is the second time out of the last 26 weeks that bearish sentiment is above its historical average of 30.5%.

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. Timing may have also played a role, as the reminder to take this week’s survey was sent out on Monday when the major indexes were declining.

In this week’s special question, we asked AAII members to share their thoughts on whether they felt the Federal Reserve should start tapering its bond purchases in the fall.

Three out of five respondents (60%) say that they believe the Federal Reserve should start tapering bond purchases in the fall. The respondents mention the threat of inflation as well as there currently being too much money supply in circulation. This compares to 25% of respondents who say that the Fed shouldn’t reduce its bond purchases, stating that the market remains uncertain and fragile due to the coronavirus pandemic and inflation is not as much of a risk as people think. About 11% of responses are uncertain or conditional, supporting the tapering of Fed bond buying if it is done a certain way.

Here is a sampling of the responses:

• “Yes. Inflation is a real problem and there is no reason for the bond purchases anymore.”
• “No, there is still too much uncertainty regarding the pandemic and its impact on the market.”
• “Yes, however, start small and gradually increase purchases.”

See more Sentiment Survey results.