Thursday, September 26, 2019

Individual Investors Far From Overly Bullish

If readers glean one item from today's release of the American Association of Individual Investors'  Sentiment Survey release, investors are far from bullish. With sentiment measures being contrarian ones, all else being equal, this is a positive for the equity market. This week's survey saw the bullishness reading declined a little over four percentage points to 29.4% with most of this difference moving to the bearish reading, i.e., up over five percentage points.

As a point of reference, a couple of prior peak markets are shown below with the respective bullishness level. In the lead up to the technology bubble, bullish sentiment reached 60%. The pre-financial crisis bullishness reading equaled 51.8%.

In spite of the length of the current economic expansion and what feels like an uninterrupted rise in the S&P 500 Index, investors certainly indicate they are not too optimistic about future stock returns which is bullish from a contrarian standpoint. As noted by AAII, the Sentiment Survey data represents what direction members feel the stock market will be in next 6 months.

Other sentiment measures appear more mixed, like the CNN Business Fear & Greed Index and the NAAIM Exposure Index. Additionally, the calendar is approaching the Jewish New Year and there is the old adage, "Sell Rosh Hashanah, Buy Yom Kippur." Although this strategy has avoided some market declines most of the declines have not been large and averaged less than a percentage point going back to 1971 according to a table in a recent article by Jeff Hirsch, editor of the Stock Trader's Almanac.

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