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AAII SENTIMENT SWINGS FROM HOPE TO HESITATION

Investor sentiment took a notably cautious turn this week, according to the latest American Association of Individual Investors (AAII) Sentiment Survey.

After showing more optimism in the prior week, individual investors became much less upbeat about the stock market's prospects over the next six months. Bullish sentiment dropped sharply, while both bearish and neutral views climbed.

Separately, the survey found that just over half of respondents said their portfolios remain primarily invested in U.S. companies, with only a modest allocation to international stocks.

AAII said bullish sentiment — the percentage of investors expecting stock prices to move higher over the next six months — fell 13.6 percentage points to 31.4%. That's below the long-term average of 37.5% and marks the sixth time in the last seven weeks that optimism has come in under its historical norm.

At the same time, bearish sentiment rose 6.1 percentage points to 42.3%, extending an unusually long stretch above its historical average of 31.0%. In fact, pessimism is "unusually high," and has now remained above normal levels for 21 straight weeks.

Neutral sentiment also increased, climbing 7.4 percentage points to 26.4%, as more investors expressed uncertainty about where stocks are headed. Even so, neutral sentiment remains below its long-term average of 31.5%, as it has for most of the past two years.

The shift in sentiment was clearly reflected in the AAII bull-bear spread, a closely watched measure that compares bullish and bearish views. The spread swung to -10.9% from +8.8% a week earlier, a nearly 20-percentage-point deterioration that underscores how quickly investor confidence weakened.

In this week's special question, AAII asked its members if their portfolios are "all American," or do they also diversify internationally (via stocks, ETFs and/or mutual funds).

Here is AAII's graphic showing how they responded.

(Terence Gabriel)

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