Individual investor optimism about the short-term direction of the stock market is above average for the first time since July according to the latest AAII Sentiment Survey. Additionally, pessimism fell to a six-month low.
Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 6.3 percentage points to 40.3%. Optimism was last higher on May 8, 2019 (43.1%). Bullish sentiment is above its historical average of 38.0% for just the ninth time this year.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 1.8 percentage points to 35.8%. Even with the decline, neutral sentiment is above its historical average of 31.5% for the 24th time in 25 weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 4.5 percentage points to 23.9%. Pessimism was last lower on May 8, 2019 (23.2%). This is the third consecutive week bearish sentiment is below its historical average of 30.5%.
This week’s rise in optimism ends a 13-consecutive-week streak of below-average readings. At current levels, all three indicators are within their historical averages.
The shift in sentiment is occurring as the major indexes are setting record highs. Many individual investors continue to monitor trade negotiations, particularly between the U.S. and China. Also having an influence on sentiment are Washington politics, geopolitics, valuations, corporate earnings, economic growth, monetary policy and interest rates.
This week’s special question asked AAII members what they thought about the Federal Open Market Committee’s decision to lower rates for the third time this year. About 45% of respondents view the cut as a bad decision. While the rationale of this group varies, a lack of “ammunition” in a future economic downturn is named most frequently. On the other hand, 26% of respondents say that the latest rate cut was the right decision given the current global economy. Outside of these groups, 15% of respondents say they believe the Fed’s decision was politically motivated and 14% state that they are unsure how the decision will impact the economy going forward.
Here is a sampling of the responses:
- “Disappointed. Our economy is in fairly good shape, so I think the Fed should have waited until the outlook looked weak.”
- “Good for the economy, but not good for us retirees who depend on interest earned income.”
- “I don’t know if it was needed or not. I can see arguments for both sides. The bottom line is, I don’t think the Fed is any better at predicting the future as anyone else.”
- “I’m not impressed as the rates were already very low. It gives them limited room to maneuver when we get into another recession, which is inevitable at some point.”
- “To keep the economy in high gear I think it was a good decision. Jobs are being added to the workplace, unemployment is low and the Dow is up. It should be a good Christmas.”
This week’s AAII Sentiment Survey results
- Bullish: 40.3%, up 6.3 percentage points
- Neutral: 35.8%, down 1.8 percentage points
- Bearish: 23.9%, down 4.5 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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