The AAII Sentiment Survey for the Frame Ended 18 May 2016

$DIA, $SPY, $QQQ, $VXX

The AAII Investor Sentiment Survey measures the percentage of individual investors who are Bullish, Bearish, and Neutral on the US stock market for the next 6 months,

Individual members are polled from the ranks of the AAII membership weekly. Just 1 vote per member is accepted in each weekly voting frame.

Survey Results for frame Ended 18 May 2016

Data represents what direction members feel the stock market will be in the next 6 months.

This week’s AAII Survey results:

 

Bullish: 19.3%, -1.1 pts
Neutral: 46.6%, – 1.7 pts
Bearish: 34.1%, + 2.8 pts

Historical averages

Bullish: 39%
Neutral: 31%
Bearish: 30%

Commentary

Optimism for a short-term rise in stock prices is below 20% for the 30th time in the 29-year history of the AAII Sentiment Survey. At the same time, more than 1 in 3 individual investors now have a downbeat view about the short-term direction of stocks.

Bullish sentiment

Expectations that stock prices will rise over the next 6 months, declined 1.1% to 19.3%. This is the lowest level of optimism recorded by our survey since 10 February 2016 (19.2%). It is also the 28th week running and the 61st out of the past 63 weeks that Bullish sentiment has been below its historical average of 39.0%.

Neutral sentiment

Expectations that stock prices will stay essentially unchanged over the next 6 months, declined 1.7% to 46.6%. The rise keeps Neutral sentiment above 40% for a 10th straight week. It also keeps neutral sentiment above its historical average of 31% for a 16th week running and the 68th out of the past 72 weeks.

Bearish sentiment

Expectations that stock prices will fall over the next six months, rose 2.8% to 34.1%. Pessimism was last higher on 17 February 2016 (37.8%). The historical average is 30%.

As noted above, there have only been 30 weeks over the survey’s history with a Bullish sentiment reading below 20%.

Since Y 1990 optimism has only dipped below 20% 9 times, with this year accounting for 3 of those occurrences: 13 January, 10 February 10 and this week.

Such low levels of optimism have been historically followed by rising stock prices.

The S&P 500 has averaged a 12.6% 26-week return following the 27 occurrences prior to year. The only exception was 10 March 2008, when the S&P 500 fell by 11.7% over the following 26 weeks.

Giving individual investors cause for concern is the slow pace of US economic growth and uncertain global economic growth, terrorism and global unrest, lackluster corporate earnings and the prevailing level of valuations.

Some AAII members are encouraged by sustained domestic economic growth, expected corporate earnings growth and still comparatively low energy prices.

This week’s special question asked AAII members for their opinion about the current pace of economic growth.

49% described growth as slow, 22% described growth as poor or inadequate, and 11% said growth was either good or as good as could be expected given the prevailing political and/or macro-economic backdrop.

By Charles Rotblut, CFA

AAII Journal

Paul Ebeling, Editor

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