3 Sentiment Surveys Signaling Increased Optimism

Market participants have been increasingly bullish of late, though sentiment is still not at the euphoria stage

Feb 6, 2017 at 11:40 AM
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The S&P 500 Index (SPX) is trading modestly lower today, after last Friday's bank-fueled rally sent the broad-market barometer within striking distance of its Jan. 26 record high of 2,300.99. With all three major benchmarks lingering near all-time-high territory, several investor sentiment surveys we track are signaling increased optimism among investors. While these indicators are not yet at the euphoria stage that typically occurs at a market tops, Schaeffer's Senior V.P. of Research Todd Salamone noted in this week's Monday Morning Outlook that he continues to "recommend allocating dollars to gold and bonds, in light of the uncertain environment -- and with some market participants more enthusiastic about stocks now relative to a couple of months ago, which may undermine the potential short-term reward."

II Bulls On the Rise

The most recent Investors Intelligence (II) survey -- which conducts a weekly poll of financial advisors to see whether they are bullish, bearish, or predicting a correction -- showed the percentage of bulls rose 3.6 percentage points to 61.8%, the highest amount since June 2014! The percentage of bearish advisors edged higher to 17.6%, while those that expect a correction dropped 3.7 percentage points to 20.6%. The bulls-minus-bears line arrived at 44.2% -- its highest perch since March 2015, and its seventh straight week north of the 40% reading we consider to be a signal of extreme optimism.

sp500 vs II bulls_bears line

AAII Reading Nears Uncharted Territory

Last week, the American Association of Individual Investors (AAII) survey notched its 109th straight week in which the percentage of bullish respondents -- members who have an optimistic six-month outlook of the stock market -- was docked below 50%. This is one week shy of the record streak of 110 weeks, which ran from Jan. 22, 1993, through Feb. 23, 1995, with the current streak starting on Jan. 8, 2015. Nevertheless, the percentage of bullish respondents rose 1.2 percentage points to 32.8% in the week ending Feb. 1, while the percentage of bearish respondents edged up 0.7 percentage points to 34.2%.

AAII bulls

NAAIM 10-Week Trendline Hits Record High

The most recent National Association of Active Investment Managers (NAAIM) exposure index fell to 94.02 from the previous week's reading of 99.28, meaning active money managers have less overall equity exposure to the market. As a point of comparison, the record-high NAAIM reading of 104.25 occurred on Dec. 30, 2013, with the second-highest reading of 101.6 arriving on Dec. 7, 2016. The average reading since NAAIM's inception is perched at 60.1. Despite last week's dip, however, the 10-week moving average for the NAAIM exposure index hit 97.4 -- its highest reading to date, according to Schaeffer's Quantitative Analyst Chris Prybal.

sp500 naaim sentiment

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