AAII Sentiment Survey: Optimism Nears Record Lows

The results from the latest AAII Sentiment Survey saw bullish sentiment drop to its 29th lowest level since the survey started in 1987. In addition, the percentage of investors describing their outlook for stocks as “neutral” decreased while pessimism increased.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased 5.1 percentage points to 19.2%, well below the historical average of 38.0%. Optimism was last lower on May 25, 2016 (17.8%). Bullish sentiment is unusually low for the sixth consecutive week and below its historical average for the 13th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, decreased by 2.6 percentage points to 37.6%. This is the ninth time out of the past 11 weeks that neutral sentiment is above its historical average of 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 7.7 percentage points to 43.2%, staying above the historical average of 30.5%. This is bearish sentiment’s 13th consecutive week above the historical average. It is also the fourth time in the past five weeks that pessimism is unusually high.

As noted above, bullish sentiment is at an unusually low level for the sixth consecutive week. Historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following an unusually low reading for bullish sentiment. The bull-bear spread (bullish sentiment minus bearish sentiment) is also unusually low at –23.9%. Such readings have also been historically followed by above-average and above-median returns for the S&P 500 over the following six- and 12-month periods.

Inflation, interest rates, the coronavirus pandemic and politics are all influencing individual investors’ outlook for stocks. Other factors include the economy and corporate earnings. The ongoing volatility in the stock market is likely also playing a role.

In this week’s special question, we asked AAII members to share their thoughts about how supply chain issues are impacting their investing decisions. About 60% of respondents say that supply chain issues are having little to no impact on their decisions since many are long-term investors and supply chain issues are perceived as a short-term problem.

Conversely, 12% of respondents say that supply chain issues are having a negative impact on their investment decisions. Around 9% cite a specific stock impact, mentioning their own strategy of moving toward or away from certain kinds of stocks. Additionally, 8% of respondents say that the supply chain is having a positive impact on their decisions, presenting them with buying opportunities. Roughly 3% of respondents have mixed feelings about how supply chain issues are impacting them and 2% of respondents are neutral. Only 2% of respondents mention a specific bond impact arising due to supply chain issues.

Here is a sampling of the responses:

• “Not much. I’m a long-term investor.”
• “Empty shelves at drug and grocery stores ... not good.”
• “I am thinking more about investing in energy and financial stocks. There already is a substantial investment in their supply chain (hydrocarbons, money and credit). Maybe I should look at utility stocks along with certain real estate investment trusts (REITs).”
• “Seeing signs of improvement.”
• “I think the supply chain issues are transitory, but I am not sure how to invest based on that belief except to discount those issues in figuring the long-term value of assets.”

See more Sentiment Survey results.