AAII Sentiment Survey: Optimism at the High End of Its Typical Range

The results from the latest AAII Sentiment Survey show bullish sentiment rising right to the edge of its typical historical range. In addition, the percentage of investors who describe their outlook for stocks as “neutral” or “bearish” both declined.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 6.5 percentage points to 48.0%. Optimism was last higher on July 1, 2021 (48.6%). This is the fourth consecutive week that bullish sentiment is above its historical average of 38.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell by 4.5 percentage points to 28.0%. This is the fourth week time in the last five weeks that neutral sentiment is below the historical average of 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, decreased by 2.0 percentage points to 24.0%. This week marks the fourth consecutive week that bearish sentiment is below the historical average of 30.5%.

Bullish sentiment is now just 0.1 percentage points away from the breakpoint between typical and unusually high readings of 48.1%. Historically, unusually high levels of optimism have been followed by below-average and below-median six-month returns for the S&P 500 index.

The increase in optimism follows the unusually long streak of consecutive up days for the S&P 500 and the Nasdaq composite. Also influencing individual investors’ outlook for stocks is the continued return to normalcy from the coronavirus pandemic, monetary and fiscal stimulus and inflationary pressures. Other factors include earnings, valuations and the Biden administration’s initiatives.

In this week’s special question, we asked AAII members to share what they think about the Federal Reserve’s intention to start tapering its bond purchases.

Slightly more than half of respondents (52%) say that the Fed was smart in terms of its timing for tapering. Many respondents believe the reduction in bond purchases will help the economy. Conversely, 33% of respondents have a more negative outlook on the taper, expressing that the Fed waited too long to take action. Moreover, about 8% of respondents are neutral, feeling undecided or unphased by the taper and its impacts.

Here is a sampling of the responses:

• “I believe it is the right decision. The time has come to transition from stimulative monetary policy to a fiscal policy that bears most of the burden for the promotion of prosperity.”
• “I feel the tapering of bond purchases by the Fed is long overdue. The coronavirus crisis is over, and the economy is doing well. The markets need to get back to normal.”
• “It is what it is. As investors, we will deal with whatever the outcome is. For those of us doing buy and hold, the decision is interesting and aimed at reducing inflation.”

See more Sentiment Survey results.