AAII Sentiment Survey: Bullish Sentiment Pulls Back

The results from the latest AAII Sentiment Survey saw bullish sentiment pull back from last week’s four-month high. Meanwhile neutral sentiment rose to its highest level in six weeks.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 9.2 percentage points to 38.8%. Even with the decline, optimism is above its historical average of 38.0% for the fifth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased by 5.9 percentage points to 33.9%. Neutral sentiment was last higher on October 7, 2021 (37.7%). The historical average is 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, increased by 3.2 percentage points to 27.2%. Nonetheless, pessimism is below its historical average of 30.5% for the fifth consecutive week.

At current levels, all three indicators are well within their typical historical ranges.

The record highs realized by the major indexes are having a mixed impact on individual investor sentiment, as the responses to this week’s special question show. 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 if they think record highs set by the major indexes are warranted.

Respondents were split. About 44% think that the record highs are unwarranted. They mention the bull run as being unrealistically long and the belief that inflation will be transitory as contributing to the highs. Conversely, 42% feel that the results are warranted given factors like low interest rates and people having excess cash on hand to put into the stock market. About 7% of respondents have mixed feelings about the record highs.

Here is a sampling of the responses:

• “No. The major indexes are responding to the belief that inflation will be transitory. At some point, reality will set in and the correction that is long overdue will occur. Depending upon how the Federal Reserve responds could turn the correction into a recession. It’s not if, but when.”
• “Yes, earnings and company profits continue to beat estimates on a regular basis.”
• “I expect the market to be bullish in the next couple of months, but to have some weakness after that. Overall, I think returns over the next six months are likely to be neutral.”

See more Sentiment Survey results.