AAII sentiment survey give hope for the optimists and the contrarians alike

[Mercury]

Check out the text of the latest AAII sentiment survey, I follow this to get contrarian indicators and this one matches the concept put forward elsewhere that investors are buying into the all time highs as a signal for more to come and the fact that there are no alternatives, a recipe for disaster in my view.  The fact that the bullishness is muted and so many are on the fence should also give pause for thought to Bulls but Bears should be waiting in the tall grass...

 

AAII survey article:

 

AAII Sentiment Survey: Optimism jumped, staying above 30% on consecutive weeks for just the second time since last November.

Optimism among individual investors about the short-term direction of stock prices is at a level not seen in over four months, according to the latest AAII Sentiment Survey. Meanwhile, neutral sentiment and bearish sentiment both declined.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 5.8 percentage points to 36.9%. Optimism was last higher on March 9, 2016 (37.4%). Even with this week's increase, bullish sentiment remains below its historical average of 38.5% for the 36th consecutive week and the 69th out of the past 71 weeks.

 

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 3.6 percentage points to 38.7%. Neutral sentiment is above its historical average of 31.0% for the 24th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 2.2 percentage points to 24.4%. Pessimism was last lower on since April 20, 2016 (23.9%). The historical average is 30.5%.

Since registering 22.0% on June 22, 2016, optimism has rebounded by 14.9 percentage points. Though it’s a big move, some context is needed. First, as noted above, bullish sentiment remains below average. Secondly, this is just the second time since last November that optimism has exceeded 30% on consecutive weeks. Bullish sentiment was above 30% during the three-week span of February 24 through March 9, 2016.

 

The rebound in stock prices and the new record highs set by the S&P 500 have had a positive impact on some individual investors. Others are encouraged by the sustained economic growth. A view that there is there is no good alternative to stocks is contributing to the optimism. Giving reason for caution or pessimism is global economic uncertainty (including Brexit), the prevailing level of valuations and disappointment with corporate earnings growth. The presidential election and monetary policy are also impacting individual investor sentiment.

 

This week's special question asked AAII members how the recently set new record low for Treasury yields is affecting their short-term outlook for stocks. Nearly four out of 10 respondents (37%) said that the new lows are not altering their outlook for stocks. Reasons were mixed, though several cited a lack of good alternatives to stocks or their adherence to a long-term allocation strategy. Nearly 33% of respondents are either more optimistic or said that the low bond yields make stocks attractive. Several of these respondents noted the comparatively higher yields that dividend-paying stocks are trading with. About 15% say that the low bond yields are making them more cautious or pessimistic. These respondents fret about valuations, investors being pushed to take on more risk and what might happen if bond yields begin to rise significantly.