Author Archive for Charles Rotblut

May AAII Asset Allocation Survey: Cash Allocations Hit an 8-Month High

By Charles Rotblut, CFA, AAII

Cash allocations rose to an eight-month high last month, according to the latest AAII Asset Allocation Survey. Individual investors reduced their equity exposure, while holding their fixed-income allocations relatively steady.

Stock and stock fund allocations fell 1.7 percentage points to 65.3%. This is a six-month low. The decline was not steep enough to prevent equity allocations from remaining above their historical average of 60% for the 14th consecutive month and for 16 out of the past 17 months, however.

Bond and bond fund allocations declined 0.1 percentage points to 15.5%. The decline put fixed-income allocations below their historical average of 16% for the third consecutive month and the fourth in the past six months.

Cash allocations rose 1.8 percentage points to 19.2%. As noted above, this is the largest allocation to cash since September 2013 (19.6%). Even with the increase, May was the 30th consecutive month with cash allocations below their historical average of 24%.

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(Chart via Orcam Financial Group)

The reduced exposure to stocks and stock funds occurred as the proportion of individual investors describing their six-month outlook for stocks as “neutral” in our weekly Sentiment Survey stayed above 40% for five consecutive weeks. Equity funds saw the biggest decline, with allocations declining by 4.1 percentage points. Though some of this drop is partially due to having a different group of AAII members take the Asset Allocation Survey in May than in April (there were likely some members who took the survey during both months), the Investment Company Institute estimates show equity funds experiencing $6.0 billion of net outflows during the first three weeks of April. While there is uncertainty about the short-term direction of stocks, the drop in yields has hurt the attractiveness of bonds to income-seeking investors.

June’s special question asked AAII members when they last changed their portfolio allocations specifically because of their age. Nearly a third of all respondents (32.3%) said that they never have changed their allocations, or that they have never changed their allocations specifically because of their age. Slightly more than 14% changed their allocation due to their age five or more years ago. Approximately 22% altered their allocations as result of their age within the past 18 months. Many respondents said they altered their allocations at retirement and have not changed their allocation due to their age since.

Here is a sampling of the responses:

  • “At age 65, I dropped from 70% equity funds to 60% and plan to keep between 50% and 60% in equities forever.”
  • “We began investing in dividend-paying stocks and increasing our cash position upon retirement, approximately 15 years ago.”
  • “Specifically because of age? The year I retired.”
  • “Never because of age. I only change my portfolio based on the market.”
  • “Never have. Pension, Social Security and rental incomes cover my expenses, so I have not had to adjust my stock and bond allocations.”
  • “I will shift my allocation to a standard when my brain no longer can analyze the markets.”

May Asset Allocation Survey results:

  • Stocks and stock funds: 65.3%, down 1.7 percentage points
  • Bonds and bond funds: 15.5%, down 0.1 percentage points
  • Cash: 19.2%, up 1.8 percentage points

May Asset Allocation Survey details:

  • Stocks: 35.1%, up 2.4 percentage points
  • Stock funds: 30.2, down 4.1 percentage points
  • Bonds: 3.7%, up 0.7 percentage points
  • Bond funds: 11.8%, down 0.8 percentage points

Historical Averages:

  • Stocks/Stock Funds: 60%
  • Bonds/Bond Funds: 16%
  • Cash: 24%

*The numbers are rounded and may not add up to 100%.

The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at http://www.aaii.com/assetallocationsurvey.

AAII Sentiment Survey: Pessimism at Lowest Level since January 2012

By Charles Rotblut, AAII

Pessimism plunged to a 21-month low and optimism rose to a 10-month high in the latest AAII Sentiment Survey. Neutral sentiment rose.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.9 percentage points to 49.2%. This is the highest level of optimism registered by our survey since January 24, 2013. It is also the fifth time in the past seven weeks that bullish sentiment is above its historical average of 39.0%.

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(Chart provided by Orcam Research)

Neutral sentiment, expectations that stock prices will stay essentially unchanged, rose 4.4 percentage points to 33.2%. This is the first time in three weeks neutral sentiment is above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 7.3 percentage points to 17.6%. This is the lowest pessimism has been since January 12, 2012. (It was also at 17.2% on January 5, 2012.) Bearish sentiment has now been below its historical average of 30.5% for five times in the past seven weeks.

This week’s readings almost replicates the readings of January 12, 2012: bullish at 49.1%, neutral at 33.7% and bearish at 17.2%. While history does not always repeat, it is interesting to look at. Bullish sentiment was above average for 15 out of 16 weeks from December 15, 2011 through March 29, 2012. This optimism was accompanied by a 16% rise in the S&P 500.

Pessimism has fallen by a cumulative 16.0 percentage points over the past two weeks and is now at an unusually low level (more than one standard deviation below average). Bullish sentiment is right at the top of its typical range. These readings come as the S&P 500 is within striking distance of its best calendar year return since 2003. Rising stock prices, better-than-forecast third-quarter earnings, and economic growth are keeping individual investors optimistic. Concerns about slow economic growth, stock valuations, and the lack of a long-term fiscal solution have not gone away, however, and remain front and center for some individual investors.

This week’s special question asked AAII members how, if at all, the latest federal budget agreement is influencing their six-month outlook for stocks. Responses were mixed. The largest group of respondents (41%) said it was not influencing their outlook. Some of these members said they are more focused on corporate earnings and the economic backdrop or simply take a long-term view towards investing. Nearly 21% of respondents said they are cautious. Concerns about another standoff occurring in January or February was the primary reason why, though some respondents also thought the latest agreement merely postponed the date for dealing with the debt reduction and other fiscal issues. Nearly 18% said they are bearish, with some fretting about a market pullback occurring in the first quarter and others frustrated with the lack of progress on fiscal issues. About 9% said they are now more optimistic.

Here is a sampling of the responses:

·         “No change. I invest for the long haul.”

·         “Not at all. I think the economy is the most influential factor in determining the direction the stock market takes.”

·         “I’m bullish for the next three months, and then I’ll wait and see.”

·         “The agreement was nothing more than another ‘kick the can down the road!’”

·         “I don’t expect another compromise by January or February, and the market will react negatively.”

·         “I would probably be bullish if the clowns in Washington had actually been able to pass a budget.”

 

This week’s AAII Sentiment Survey results:

·         Bullish: 49.2%, up 2.9 percentage points

·         Neutral: 33.2%, up 4.4 percentage points

·         Bearish: 17.6%, down 7.3 percentage points

 

Historical averages:

·         Bullish: 39.0%

·         Neutral: 30.5%

·         Bearish: 30.5%

 

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday(12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

Pessimism Drops, but Investors Remain Bearish

By Charles Rotblut, CFA, AAII

Though bearish sentiment pulled back to within its normal range, individual investors remain pessimistic overall about the short-term direction of stock prices, according to the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.4 percentage points to 28.3%. Even with the increase, optimism remained below its historical average of 39% for the sixth consecutive week. This is the longest such streak since August 30, 2012, through November 22, 2012.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 8.0 percentage points to 32.9%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 9.4 percentage points to 38.8%. Since spiking to 54.5% on April 11, 2013, pessimism has pulled back by a cumulative 15.7 percentage points. Nonetheless, bearish sentiment remains above its historical average of 30.5%.

The improvement in bullish sentiment puts it right at one standard deviation below its historical average, or the tip of where we would consider it to be unusually low. The decline in bearish sentiment puts it back within the typical range of readings we have seen throughout the survey’s history.

Though bearish sentiment declined for the second consecutive week, more individual investors remain pessimistic than optimistic about the short-term direction of stock prices. Concerns that stock prices have moved too far, too fast, the recent increase in market volatility, slow earnings growth, mixed views about the pace of economic growth and ongoing frustration with Washington are all playing a role.

This week’s special question asked AAII members how attractive U.S. stocks are relative to other asset classes, such as bonds, foreign stocks and precious metals. Slightly more than half of all respondents (52%) said U.S. stocks were the most attractive asset class. About 10% said foreign stocks are more attractive. Approximately one-quarter of respondents (26%) described U.S. stocks as overvalued, overbought or not attractive, however.

This week’s AAII Sentiment Survey results:

·         Bullish: 28.3%, up 1.4 percentage points

·         Neutral: 32.9%, up 8.0 percentage points

·         Bearish: 38.8%, down 9.4 percentage points

Historical averages:

·         Bullish: 39.0%

·         Neutral: 30.5%

·         Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

 

Individual Investors Remain Pessimistic

By Charles Rotblut, CFA, AAII

Individual investors remain pessimistic about the short-term outlook for stocks, even though bullish sentiment did improve in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 7.5 percentage points to 26.8%. Even with the increase, this is the first time optimism has been below 30% on consecutive weeks since July 19 and July 26, 2013. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.3 percentage points to 24.9%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 6.3 percentage points to 48.2%. The historical average is 30.5%.

This is the first time since March 5 and March 12, 2009, that the bull-bear spread has been below -20 percentage points on consecutive weeks. The bull-bear spread is the difference between bullish and bearish sentiment.

Though optimism did improve, AAII members remain pessimistic about the short-term outlook for stock prices. Both bullish and bearish sentiments are still more than one standard deviation from their historical averages, making this week’s readings unusual. This week’s higher response count, 365 votes, suggests that last week’s large swings were not the result of fewer AAII members taking the survey.

The recent return of some downward price volatility is having an effect on individual investors’ moods. Also playing a role are mixed views about the pace of economic growth, ongoing frustration with Washington and concerns that stock prices have moved too far, too fast.

This week’s special question asked AAII members what would cause the market’s current upward run to end. Responses varied. A change in monetary policy leading to less Federal Reserve stimulus or high rates was cited by about 14% of respondents. A similar number of respondents said weak earnings or poor profit guidance would drag down stock prices. Geopolitical issues, particularly with North Korea, were listed as a potential downward catalyst by about 11% of respondents. Slower or negative economic growth came in fourth, with slightly less than 10% of respondents saying it would adversely affect the markets. (Some AAII members listed more than one catalyst.)

Here is a sampling of the responses:

· “If the Federal Reserve cranks up interest rates or just hints that it might, then the market would probably plunge.”

· “The Fed pulling back on stimulus to the economy”

· “A lack of good earnings growth and weakening economic data.”

· “Something drastic like war with North Korea or Iran.”

This week’s AAII Sentiment Survey results:

· Bullish: 26.8%, up 7.5 percentage points

· Neutral: 24.9%, down 1.3 percentage points

· Bearish: 48.2%, down 6.3 percentage points

Historical averages:

· Bullish: 39.0%

· Neutral: 30.5%

· Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

 

AAII: Bearish Sentiment Surges to 54.5%

By Charles Rotblut, CFA, AAII

Bullish sentiment plunged to levels not seen since the end of the last bear market, while bearish sentiment posted its third largest weekly spike in the history of the AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 16.2 percentage points to 19.3%. This is the lowest level of optimism recorded by the survey since March 5, 2009. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, dropped 10.1 percentage points to 26.2%. This is a five-week low. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, spiked upward by 26.3 percentage points to 54.5%. This is the highest pessimism has been since July 8, 2010.

The 19.3-point plunge in bullish sentiment was the largest one-week drop since optimism fell by 17.6 percentage points on November 18, 2010. This week’s drop is also the 34th largest in the history of the survey and the 66th largest overall weekly change. The AAII Sentiment Survey started in 1987.

The 26.3-percentage point rise in bearish sentiment was exceeded only by a 26.7-percentage point rise on July 3, 2003 and a 30.0-percentage point rise on March 30, 2000. This week’s change is also the fifth largest in the survey’s history. Pessimism fell by 29.2 percentage points on April 6, 2000, and by 27.3 percentage points on June 26, 2003.

A total of 145 AAII members took the survey this week. This is down from the three-month average of 330 responses. A weekly “reminder” email normally sent to a sample of our members was unintentionally not sent this week. Previous drops in the number of respondents on a given week have not resulted in the magnitude of change recorded in this week’s survey, however. Furthermore, 145 is not an abnormally low number of responses for the survey.

We are not seeing any specific signs that would suggest why pessimism surged and optimism fell so much. The disappointing jobs report could have played a role. We can say that some members have previously expressed concern that stock prices have moved too far, too fast and are now due for a pullback.

At current levels, bearish sentiment is at an extraordinarily high level (more than two standard deviations above its historical average) and bullish sentiment is near an extraordinarily low level. (A bullish sentiment reading below two standard deviations would be 17.9%.) Such readings have historically been a contrarian signal. Though there is a correlation with between extraordinary sentiment readings and market reversals, as is the case with any single market indicator, the correlation is not perfect. Therefore we would consider other indicators and factors before making any judgment on the short-term direction of stock prices.

This week’s special question asked AAII members if the rhetoric from and the actions by North Korea are influencing their short-term outlook for stock prices. More than 80% of respondents said no, the terse language and actions from North Korea are not impacting their sentiment. A few members said it was having some impact, but also noted that other macro factors are also influencing their sentiment toward U.S. stocks.

Here is a sampling of the responses:

·         “No. I think most investors assume that North Korea is just making threats to get something of value from the rest of the world.”

·         “Not really. I think most people see this as ‘business as usual’ for a new dictator.”

·         “Not until an actual armed conflict occurs.”

·         “Yes, but biggest issue at present is that this market needs rest.”

This week’s AAII Sentiment Survey results:

·         Bullish: 19.3%, down 16.2 percentage points

·         Neutral: 26.2%, down 10.1 percentage points

·         Bearish: 54.5%, up 26.3 percentage points

Historical averages:

·         Bullish: 39.0%

·         Neutral: 30.5%

·         Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

Bullish Sentiment Declines

By Charles Rotblut, CFA, AAII

Neutral sentiment is at highest level since December 22, 2011 in the latest AAII Sentiment Survey. The rise in neutral sentiment is occurring as both short-term optimism and pessimism are falling among individual investors.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.9 percentage points to 35.5%. This is the third consecutive weekly decline. It also puts optimism at its lowest level in a month. The historical average is 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 3.4 percentage points to 36.3%. As noted above, this is the highest neutral sentiment has been in more than 16 months. It is also the first time neutral sentiment has been above its historical average of 30.5% on consecutive weeks since October 4 and October 11, 2012.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.5 percentage points to 28.2%. This is a nine-week low for pessimism. The historical average is 30.5%.

The last time both bullish and bearish sentiment were below their respective historical averages on consecutive weeks was August 2 through August 16, 2012. The second-most-recent occurrence was on February 25 and March 4, 2010.

The declines in optimism and pessimism are not significant as both bullish and bearish sentiment remain close to their historical averages. While the major indexes continue to trade near record or multi-year highs, AAII members are mixed about what the next six months will bring in terms of market direction. Some members are encouraged by this year’s gains, while others fret that stocks are overbought and are due for a pullback. Also impacting sentiment are mixed views about the pace of economic growth and ongoing frustration with Washington.

This week’s special question asked AAII members which industries and sectors they like right now. Energy, including master limited partnerships, received the most votes, listed by 30% of respondents. Health care came in second with 23% of respondents favoring the sector, technology was a close third (21%) and financials came in fourth (14%). When we asked the same question last September, AAII members favored energy, health care, commodities and technology.

This week’s AAII Sentiment Survey results:

· Bullish: 35.5%, down 2.9 percentage points

· Neutral: 36.3%, up 3.4 percentage points

· Bearish: 28.2%, down 0.5 percentage points

Historical averages:

· Bullish: 39.0%

· Neutral: 30.5%

· Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

 

AAII: No Sentiment Conviction in Either Direction

By Charles Rotblut, CFA, AAII

Individual investors became both less optimistic and less pessimistic in the latest AAII Sentiment Survey. This is the first reading since last August to show both bullish and bearish sentiment below their historical averages at the same time.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.5 percentage points to 38.4%. This is the fourth time in five weeks that bullish sentiment is below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, spiked by 5.2 percentage points to 33.0%. This is just the second time since October 11, 2012, that neutral sentiment is above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 4.7 percentage points to 28.7%. This is the first time in six weeks that bearish sentiment is below its historical average of 30.5%.

It has been unusual over the past few years to see both bullish and bearish sentiment below their respective historical averages on the same week. Though this week’s readings are only modestly below their respective averages, they are indicative of the mixed thoughts individual investors have about the length of the current rally. While seeing the major indexes trade near record or multi-year highs has prompted some AAII members to be more optimistic about the short-term direction of stock prices, others fret that stocks are overbought and are due for a pullback. Also impacting sentiment are mixed views about the pace of economic growth and ongoing frustration with Washington.

This week’s special question asked AAII members what influence the European sovereign debt crisis is having on their short-term outlook for stocks. About 40% of respondents said the debt problems were either causing them to be pessimistic or at least more pessimistic than they were six months ago. Nearly 32% of respondents said the crisis was not influencing their outlook for U.S. stocks, however. A few respondents said there is no change in terms of how the ongoing crisis is impacting their short-term outlook for stocks from last year.

Here is a sampling of the responses:

·        “I am concerned, but I hope it will not have a serious impact on the U.S. stock market.”

·        “I’m very cautious. I don’t trust the politicians or the central bankers.”

·        “The European debt crisis has been going on for some time and the longer it lasts, the less worried I become.”

·        “None. Since the eurozone crisis began a couple of years ago, I sold all of my foreign holdings.”

·        “Relative to last year, not much as has changed in my thinking. I was pessimistic then and nothing has changed my view now.”

This week’s AAII Sentiment Survey:

·        Bullish: 38.4%, down 0.5 percentage points

·        Neutral: 33.0%, up 5.2 percentage points

·        Bearish: 28.7%, down 4.7 percentage points

*Due to rounding, the numbers displayed above add up to 100.1%. If more decimal points were displayed, the numbers would add up to 100%.

Historical averages:

·        Bullish: 39.0%

·        Neutral: 30.5%

·        Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

Ongoing Rally Splits Investor Attitudes

By Charles Rotblut, CFA, AAII

The latest AAII Sentiment Survey results continue to be volatile, with bullish sentiment pulling back and neutral sentiment rebounding. Optimism is very close to its historical average, while pessimism continues to hover slightly above its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.5 percentage points to 38.9%. This puts it about even with its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 5.2 percentage points to 27.7%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 1.3 percentage points to 33.3%. This puts pessimism above its historical average of 30.5% for the fifth consecutive week.

The recent volatility in our weekly Sentiment Survey results shows the divided nature of individual investors’ thoughts about the length of the current rally. While seeing the major indexes trade at record or multi-year highs has prompted some AAII members to be more optimistic about the short-term direction of stock prices, others fret that stocks are overbought and are due for a pullback. Also impacting sentiment are mixed views about the pace of economic growth and ongoing frustration with Washington.

This week’s special question asked AAII members what would make them more optimistic about the short-term direction. A resolution to the ongoing fiscal standoff between Republicans and Democrats was cited most, with slightly more than 38% of respondents saying it would be a positive catalyst. (An additional 15% of respondents discussed their frustration with the political party they disagreed with.)  Approximately 13% of respondents said stronger economic growth would make them more optimistic and 10% are looking for an improved global macro picture. Some members (12%) said their sentiment would improve if stock prices pulled back by 5% or 10%. Factored into these numbers are members who listed more than one catalyst.

Here is a sampling of the responses:

·         “Washington getting something done on the budget issue once and for all.”

·         “The federal government tackling the issue of national debt and a continued increase in job growth.”

·         “A 5%-10% correction would make me more optimistic.”

·         “A modest correction. Things are a little overheated in my opinion.”

·         “Increasing positive earnings and a continued increase in housing starts.”

·         “If Congress demonstrates a willingness and ability to act fiscally responsible, I would be very optimistic. I would also expect to see pigs flying around me.”

This week’s AAII Sentiment Survey results*:

·         Bullish: 38.9%, down 6.5 percentage points

·         Neutral: 27.7%, up 5.2 percentage points

·         Bearish: 33.3%, up 1.3 percentage points

*Due to rounding, the numbers displayed above add up to 99.9%. If more decimal points were displayed, the numbers would add up to 100%.

Historical averages:

·         Bullish: 39.0%

·         Neutral: 30.5%

·         Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.

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The American Association of Individual Investors (AAII) is a nonprofit education group that provides the tools, resources and know-how investors need to successfully build and manage investment wealth. AAII members receive our monthly Journal, three model portfolios, access to over 50 local chapters and the comprehensive investment education available on our website at: www.aaii.com.