Investors turn more optimistic — but not more aggressive: AAII

Individual investors are feeling a lot better about the stock market.

The latest American Association of Individual Investors (AAII) Sentiment Survey shows optimism picked up noticeably this week, while both neutral and bearish views retreated. Nearly 45% of respondents expect stocks to rise over the next six months, up 8.6 percentage points from the prior week. At 44.9%, bullish sentiment is above its long-term average of 37.5% for just the second time in the past nine weeks.

As confidence improved, fewer investors remained on the sidelines. Neutral sentiment fell 4.3 percentage points to 22.2%, a level AAII describes as "unusually low." Neutral sentiment has now come in below its historical average of 31.5% for 104 of the past 106 weeks.

Meanwhile, pessimism also eased. Bearish sentiment declined 4.3 percentage points to 32.9%, though it remains slightly above its long-term average of 31.0%. In fact, bearish sentiment has exceeded its historical norm for 23 consecutive weeks.

The improving mood showed up clearly in the bull-bear spread, a widely watched measure of investor sentiment. The spread jumped to 12.0% from -0.9% a week ago, its highest reading since late January and above its historical average of 6.5%.

Still, better sentiment has yet to translate into a greater willingness to take risk. Just 5% of investors surveyed said they have recently become more aggressive in their investing approach, suggesting that while confidence is improving, most investors are not yet fully embracing the market's rally.

AAII's chart below illustrates how members say they have recently adjusted their approach to investing.

(Terence Gabriel)