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.

Charles Rotblut

Charles Rotblut, CFA, is a vice president of the American Association of Individual Investors. He is the editor of the AAII Journal. He authors the weekly AAII Investor Update e-newsletter and his commentary is published on both Seeking Alpha and Forbes.com.

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  • kk

    tough to be a successful investor when your investment MO is based upon short term predictions about what the market will do. AAII should do a better job educating their members, and not putting out these worthless surveys.