Photo by Spencer Platt
The percentage of individual investors describing their short-term outlook as “neutral” rose to a five-week high in the latest AAII Sentiment Survey. Optimism also rose while pessimism plunged.
Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 7.5 percentage points to 41.3%. The increase puts optimism above its historical average of 38.0% for the third time in five weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 1.4 percentage points to 32.3%. The historical average is 31.5%.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 8.8 percentage points to 26.4%. Though a large drop, it only puts pessimism at a three-week low. The historical average is 30.5%.
All three indicators are currently within their typical historical ranges.
The coronavirus outbreak is dampening the economic outlook for some but not all individual investors. Also affecting individual investor sentiment is the market’s upward trend, valuations, the phase one trade deal between the U.S. and China, the November elections, Washington politics, earnings growth, monetary policy and the economy.
In this week’s special question, we asked AAII members to elaborate on their comfort level with current stock valuations. A little less than half of respondents (45%) state that they are slightly concerned with current stock valuations. This compares to 32% of respondents who state that they are very concerned with current valuations. In these two groups, many cited high price-earnings (P/E) ratios and uncertainty of corporate earnings growth as reasoning for their concern. Conversely, 20% of respondents state that they are comfortable with current valuations given the low interest rate environment.
Here is a sampling of the responses:
- “Valuations are presently stretched beyond earnings growth. The bond market has demonstrated an inverted yield curve, albeit short-lived, and that can signal a recession in the near future.”
- “The current level after 11 years of rising values makes one think seriously about allocation, but I’m still comfortable having 60% in equities.”
- “Progressively lower [comfort level] as reported earnings will show less growth and jobs growth will slow. When Tesla crashes from its overexuberant height, the market will panic.”
- “More confident than ever, the U.S. is the best global place to invest the world’s trillions. Also, more U.S. workers equals more 401(k) contributors, which means higher market valuations.”
As of February 13, 2020
American Association of Individual Investors
This week’s AAII Sentiment Survey results:
- Bullish: 41.3%, up 7.5 percentage points
- Neutral: 32.3%, up 1.4 percentage points
- Bearish: 26.4%, down 8.8 percentage points
- 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.
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