AAII Sentiment Survey: Neutral Sentiment At Highest Level Since January 2020

The results from the latest AAII Sentiment Survey show a sharp increase in the percentage of individual investors who describe their outlook for stocks as “neutral.” In addition, pessimism plunged while optimism only slightly declined.

Bullish sentiment, expectations that stock prices will rise over the next six months, decreased by 0.9 percentage points to 31.9%. Optimism remains below its historical average of 38.0% for the 19th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, surged 8.8 percentage points to 40.6%. Neutral sentiment was last higher on January 1, 2020 (40.9%). The historical average is 31.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 7.9 percentage points to 27.5%. Pessimism was last lower on November 18, 2021 (27.2%). The drop ends an 18-consecutive-week streak of readings above the historical average of 30.5%.

Neutral sentiment is now at an unusually high level. The dividing line between typical and unusually high levels is 39.8%. Historically, unusually high neutral sentiment readings have been followed by slightly below-average and below-median six-month returns for the S&P 500 index. However, the majority of past unusually high neutral sentiment readings were recorded during the so-called lost decade of 2000-2009.

Both bullish and bearish sentiment are currently within their typical ranges.

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.

This week’s special question asked AAII members to share their thoughts on the current valuation of stocks. Slightly more than half of all respondents (51%) feel that stocks are overvalued and that many investors are being too optimistic. In contrast, 20% of respondents say that they feel stocks are fairly valued given economic and global circumstances. Around 16% have a mixed outlook. These respondents say certain kinds of stocks, such as growth stocks, are overvalued while others, like value stocks, are undervalued. Just 5% of respondents see stocks as currently being undervalued.

Here is a sampling of the responses:

• “The market is still overvalued.”
• “Fairly priced as we wait to see if the economy moves lower as the world economy becomes more difficult to operate in or if it moves higher as supply chain kinks are worked out with minimal impact to profits.”
• “Many big-name stocks are overvalued, while many lesser-known stocks are good deals.”
• “Stocks are cheap relative to bonds.”

This week’s AAII Sentiment Survey results:

• Bullish: 31.9%, down 0.9 percentage points
• Neutral: 40.6%, up 8.8 percentage points
• Bearish: 27.5%, down 7.9 percentage points

Historical averages:

• Bullish: 38.0%
• Neutral: 31.5%
• Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987. The survey and its results are available online.