Investors take a wait-and-see approach to Warsh - AAII

Individual investors grew slightly less pessimistic this week, with optimism about the near-term outlook for U.S. stocks recovering some lost ground, according to the latest American Association of Individual Investors (AAII) Sentiment Survey. Neutral sentiment slipped, while bearish sentiment eased modestly.

Bullish sentiment, or expectations that stock prices will rise over the next six months, climbed 1.4 percentage points to 31.0%. Even so, optimism remains relatively subdued and has been below its historical average of 37.5% in four of the past five weeks.

Neutral sentiment, or expectations that stocks will remain largely unchanged over the next six months, fell 1.2 percentage points to 26.9%. That marks the 106th time in the past 108 weeks that neutral sentiment has been below its long-term average of 31.5%.

Bearish sentiment, or expectations that stock prices will fall over the next six months, edged down 0.2 percentage points to 42.1%. Pessimism remains "unusually high" and has stayed above its historical average of 31.0% for 25 consecutive weeks.

As a result, the bull-bear spread narrowed to negative 11.1% from negative 12.8% a week earlier. While that represents a modest improvement, the spread is still well below its historical average of 6.5%, underscoring the cautious mood among individual investors.

In this week's special question, AAII members were asked for their views on newly appointed Federal Reserve Chair Kevin Warsh. More than half of respondents said they would prefer to give Warsh more time before forming an opinion, reinforcing the view that investors are still assessing how his leadership could shape monetary policy and financial markets.

AAII’s graphic below shows how investors responded.

(Terence Gabriel)