The percentage of individual investors describing their short-term outlook for stock prices as neutral is at a five-month low in the latest AAII Sentiment Survey. Pessimism also declined, while optimism rose.
Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 8.8 percentage points to 41.8%. Optimism is above its historical average of 38.0% for just the 12th time in the past 52 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 6.4 percentage points to 30.7%. This is the first time that neutral sentiment is below its historical average of 31.5% since August 7, 2019.
Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back by 2.4 percentage points to 27.5%. The drop keeps pessimism below its historical average of 30.5% for the 13th consecutive week.
All three indicators are currently well within their typical historical ranges.
The cooling of tensions between Iran and the U.S., as well as the rising stock prices, are likely contributing to investor optimism. Also affecting sentiment are the trade agreement between the U.S. and China, the November elections, Washington politics, earnings growth, monetary policy, the economy and valuations.
This week’s special question asked AAII members to explain how, if at all, oil prices are impacting their outlook. The majority (64%) of respondents state that oil prices are not impacting their overall market outlook. Reasoning in this group includes that there is lower demand for oil and that fluctuations to this point are immaterial. However, many within this group did say that they are monitoring oil prices for more drastic volatility. On the other hand, 21% of respondents state that oil prices are making them more optimistic. Many in this group say that if oil prices continue to rise, other commodities will follow. Conversely, 15% of respondents state that they have a more bearish outlook for the stock market and believe that the market will weaken following a decline in oil prices.
Here is a sampling of the responses:
“I don’t believe oil prices are as pivotal as they once were. The U.S. is a top producer and we have huge reserves. Plus, people are not using as much as they did 10–20 years ago.”
“I view oil prices as a good marker for the market—continued increases help earnings and are a positive benefit for the whole market.”
“It depends on how much they rise. If everything else is going well (rising), and oil goes to $100/barrel, then that will be bad. If it rises to the high $60s or low $70s, then we’re probably OK.”
“The current increase in price is due to the conflict with Iran and sanctions. But oil prices should move up during the year and I view that as a positive impact on the market.”
“Negatively. Oil’s failure to rally suggests economic weakness that the market will eventually realize. The energy sector has failed to engage in market upside suggesting slower economic growth.”
This week’s AAII Sentiment Survey results:
Bullish: 41.8%, up 8.8 percentage points
Neutral: 30.7%, down 6.4 percentage points
Bearish: 27.5%, down 2.4 percentage points