AAII Sentiment Survey: Neutral Sentiment Jumps as Optimism Falls to an Unusually Low Level

The results from the latest AAII Sentiment Survey show neutral sentiment jumping back above its historical average. In addition, the number of investors describing their outlook for stocks as “bullish” fell to an unusually low level.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased 2.7 percentage points to 25.5%. This is the fourth consecutive week that bullish sentiment is below the historical average of 38.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased by 6.6 percentage points to 37.7%. This jump puts neutral sentiment above its historical average of 31.5% for the first time in three weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, decreased by 3.9 percentage points to 36.8%. This week is the fourth consecutive week and the ninth time in the last 10 weeks that bearish sentiment is above the historical average of 30.5%.

As noted above, bullish sentiment is now at an unusually low level (more than one standard deviation below its historical average). Historically, unusually low levels of optimism have been followed by both above-average and above-median six- and 12-month returns for the S&P 500 index. Bearish sentiment is back within its typical range after having risen to an unusually high level last week.

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 whether the recent back-and-forth about raising the debt ceiling has impacted their short-term outlook on stocks.

More than half of respondents (56%) say that they are indifferent to the debate about raising the debt ceiling. Many respondents indicate that it is just political noise and that they are confident it will be resolved. Furthermore, the political infighting doesn’t seem to impact these respondents’ investing strategies. This compares to 33% of respondents who say they have a negative outlook resulting from the debt-ceiling talks, citing the potential for a crash in the near to medium-term future. About 7% of responses express a positive outlook.

Here is a sampling of the responses:

• “I am not a short-term investor, so I just consider this noise over the long term. It has not affected my style of investing.”
• “Over the short term it is a negative, over the long term no impact.”
• “I expect a short-term drop like we are seeing now, followed by a market increase. Good buying opportunity.”

See more Sentiment Survey results.