Chart of the Week

BULLISH SENTIMENT NOT STRETCHED YET

Each week, the American Association of Individual Investors (AAII) asks its members for their view on the stock market over the next six months.

If a respondent anticipates the market to rise they are classed as “bullish” and they are defined as “bearish” if they expect it to fall. They are deemed “neutral” if they expect little change.

The survey is far from perfect.

As we have noted before, how people say they feel about an economic or market event often contradicts how they are positioned. Another shortcoming of this particular metric is the fact it does not account for how much a respondent believes the market may rise or fall.

Regardless, by pooling the various replies it is possible to get a sense for overall investor sentiment, particularly if you net off the bulls and the bears, per the chart below.

A rising line suggests there are more bulls than bears (and vice versa) which, at face value, can be a reason for caution as it infers investors are already positioned for a stronger market.

However, scale is all-important and the net bullish reading is currently well below its prior peaks of the past ten years.

On a standalone basis, this indicator suggests the equity bull market is some way from over.