AAII Sentiment Survey: Bullish Sentiment Falls to a Four-Month Low

The results from the latest AAII Sentiment Survey show bullish sentiment at its lowest level in four months. In addition, the number of investors who described their outlook for stocks as “bearish” and “neutral” increased.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased 7.9 percentage points to 24.9%. Optimism was last lower on September 16, 2021 (22.4%). Bullish sentiment is below its historical average of 38.0% for the eighth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased by 2.9 percentage points to 36.8%. This is the sixth consecutive week that neutral sentiment is above its historical average of 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, increased by 5.0 percentage points to 38.3%. This is bearish sentiment’s eighth consecutive week above its historical average of 30.5%.

Bullish sentiment is at an unusually low level (more than one standard deviation below the historical average) for the third time in seven weeks. Historically, such low readings have been followed by above-average and above-median six- and 12-month returns for the S&P 500 index.

The coronavirus pandemic (including the uneven return to normalcy), 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 if they were planning on making any changes to their portfolios this year.

Many respondents listed more than one intended change. The most frequently mentioned adjustment was to buy or sell stocks (42% of all respondents). These actions included investing in different industries, looking for riskier but potentially more rewarding investments and seeking out stocks with high dividend yields. About 27% of respondents plan to make only minor changes or no changes to their portfolio. Cash-related changes, involving increasing or decreasing cash positions, were discussed by 15% of respondents. Finally, 8% of respondents intend to buy or sell bonds.

Here is a sampling of the responses:

• “Move more into equities. Inflation is making fixed income dangerous to long-term financial health.”
• “Nothing. I have no idea what is going to happen over the next six months.”
• “I expect to shift toward more cash or cash-like investments in the first half of this year.”
• “More in bonds as interest rates rise. Cash will lose some to inflation, but I will hold at least 25% cash until domestic stocks drop at least 20%. Then I will reverse-dollar-cost average into stocks as they continue going down.”

See more Sentiment Survey results.