AAII Sentiment Survey: Neutral Sentiment Rebounds

The results from the latest AAII Sentiment Survey show neutral sentiment rebounding from last week’s 18-month low. In addition, optimism continues to be unusually low and pessimism continues to be unusually high.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased by 2.5 percentage points to 24.3%. The decline keeps optimism below its historical average of 38.0% for the 25th consecutive week. Bullish sentiment also remains at an unusually low level for the 15th time out of the last 18 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased by 6.4 percentage points to 26.6%. The rise puts neutral sentiment back within its typical historical range but was not enough to put it above the historical average of 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, decreased by 3.8 percentage points to 49.0%. This is the 24th time out of the last 25 weeks that pessimism is above its historical average of 30.5%. It is also the 14th time out of the last 17 weeks that bearish sentiment is at an unusually high level.

At current levels, bullish sentiment and the bull-bear spread (bullish minus bearish sentiment) are all unusually low. Meanwhile, bearish sentiment is unusually high.

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 unusually low readings for bullish sentiment and for the bull-bear spread. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500.

In addition to the downward volatility in the stock market, the ongoing invasion of Ukraine by Russia, stock market volatility, inflation, interest rates, the coronavirus pandemic and politics are all influencing individual investors’ outlook for stocks. Other factors include the economy and corporate earnings.

In this week’s special question, we asked AAII members to share their thoughts on how the Federal Reserve’s 50-basis-point interest rate hike and the likelihood of further rate hikes are impacting their sentiment toward stocks.

One out of three respondents (33%) express a bearish outlook. They believe the Fed waited too long to raise interest rates to curb inflation. Furthermore, many respondents in this group believe the rate hikes will lead to a recession. Conversely, 24% of respondents say that they are bullish and the rate hikes will create buying opportunities in the stock market. Around a quarter of respondents either took a neutral stance or express no change in their sentiment due to the news. Additionally, 11% of respondents have a mixed outlook, noting both the positives and negatives of rate hikes.

Here is a sampling of the responses:

• “The rate hikes are for the wrong reasons. They don’t correct supply chain problems or price monopolies. Along with the credit tightening, price hikes will likely create a recession and a sharp market drop.”
• “No change, I’m bullish on equities (especially since they are currently on sale).”
• “Has no impact.”
• “Necessary to blunt inflation but painful wealth destruction is well underway.”
• “Neutral to slightly negative. The change reflects reality but there is too much uncertainty in the economy for the rate change to help.”

See more Sentiment Survey results.