The latest investor sentiment surveys show continued levels of high bullishness. This week’s AAII sentiment survey showed another increase in bullish sentiment to 49.7%. Charles Rotblut of AAII detailed the results:
“Bullish sentiment rose 2.3 points to 49.7% in the latest AAII Sentiment Survey. Optimism among individual investors that stock prices will rise over the next six months remained above its historical average of 39% for the 13th consecutive week.
Neutral sentiment, expectations that stock prices will be essentially unchanged over the next six months, fell 3.8 percentage points to 24.1%. This was the 17th consecutive week that neutral sentiment has been below its historical average of 31%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.5 percentage points to 26.2%. Pessimism has been below its historical average for 10 out of the last 12 weeks.
Though the markets have been volatile on a day-to-day basis, the S&P 500 is at approximately the same level it was at the start of November. The ability of stocks to hold onto their gains despite fears about U.S. monetary policy and European sovereign debt problems is helping individual investors remain upbeat about the short-term prospects for stocks. It should be noted that our November Asset Allocation Survey showed AAII members increased their allocations to stocks and stock funds for the fourth consecutive month.
As stated above, bullish sentiment is above its historical average for the 13th consecutive week. This is the longest streak of above-average readings since 2004, when bullish sentiment stayed above its historical average for 19 consecutive weeks. What happened afterwards? Stocks were volatile, with the S&P 500 falling by more than 75 points, but six months after the streak ended, the large-cap index was essentially unchanged.”
The Investor’s Intelligence survey is showing similar high levels of optimism. This week’s reading was down marginally from last week to 55.4%, but remains well above historical norms:
Source: Investor’s Intelligence, AAII
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.