AAII Sentiment Survey: Optimism Ends 2021 on a Six-Week High

Optimism among individual investors about the short-term direction of the stock market rebounded during the final week of 2021. At the same time, both neutral and bearish sentiment pulled back.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 8.1 percentage points to 37.7%. This is a six-week high. Even with the increase, optimism remains below its historical average of 38.0% for the sixth consecutive week.

Neutral sentiment, expectations that stock prices will be unchanged over the next six months, fell 4.8 percentage points to 31.8%. Neutral sentiment is above its historical average of 31.5% for the fourth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined by 3.3 percentage points to 30.5%. Pessimism was last lower on November 18, 2021 (27.2%). Bearish sentiment currently matches its historical average of 30.5%.

Since falling to an unusually low level of 25.2% two weeks ago, bullish sentiment has rebounded by a cumulative 12.4 percentage points. The improvement has occurred as the S&P 500 index rose to new highs and the Russell 2000 index rebounded.

The progress toward returning to normalcy from the coronavirus pandemic, monetary and fiscal stimulus and inflationary pressures also continue to influence individual investors’ outlook for stocks. Reports of the omicron variant not being as severe as the delta variant may also be playing a role. Additional factors include earnings, valuations and the Biden administration’s initiatives.

This week’s special question asked AAII members how their portfolios performed this year relative to their expectations at the start of 2021. Nearly three out of five respondents (57%) describe their returns as being better than expected. This group includes those who said their returns were much better than expected (slightly more than 10% of all responses).

Approximately 7% of respondents describe their portfolios as having performed close to their expectations while 11% use words such as “well,” “average” or “satisfactory.” About 12% of respondents say their portfolios underperformed relative to their expectations.

Here is a sampling of the responses:

• “Due to COVID, my expectations were that my portfolio would bounce around and close the year slightly up. My actual performance far exceeded that. In fact, 2021 was my best single year ever!”
• “Portfolio did better than expected because the market did better than I expected.”
• “Performed above exceptions. I was pleasantly surprised by the brief outperformance of value, especially small-cap value. More of that please.”
• “Below average as I was too conservative during the year waiting for the next big correction to occur, which never did.”
• “Less than anticipated, but still a double-digit return.”

See more Sentiment Survey results.