AAII Sentiment Survey: Bullish Sentiment Rebounds Strongly

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Source: http://www.flickr.com/photos/hackny/

Source: http://www.flickr.com/photos/hackny/

Bullish sentiment rebounded strongly in the latest AAII Sentiment Survey. The 12.3 percentage point rise was the largest since a 12.9 percentage point rebound on November 28, 2013. Accompanying the increase in optimism was the largest weekly drop in pessimism since August 29, 2013. Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 12.3 percentage points to 40.1 percent. This is a five-week high. The historical average is 39.0 percent.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, declined 3.2 percentage points to 32.5 percent. This is a five-week low. Even with the decline, neutral sentiment remains above its historical average of 30.5 percent for the sixth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 9.1 percentage points to 27.3 percent. The drop reverses two consecutive weeks with readings above 30 percent and puts pessimism below its historical average for the 19th time in the past 23 weeks.

Though the proportion of bulls increased significantly in this week’s survey, it’s worth noting that optimism remains below the levels registered at the start of this year. Furthermore, the current six-week streak of consecutive above-average neutral sentiment readings is the longest since last summer’s 12-week streak (May 30 through August 15, 2013.)

The rebound in the S&P 500 after its recent pullback has likely alleviated concerns, at least temporarily, among individual investors about whether the market established a short-term top at the start of the year and whether a correction is looming. Sustained earnings and economic growth, Federal Reserve Chair Janet Yellen’s intent to continue tapering bond purchases, and the debt ceiling agreement are also contributing to the optimistic six-month outlook. Keeping some individual investors bearish are worries that the market’s weakness is not over with elevated stock valuations, the pace of revenue growth, and Washington politics.

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