And the Survey Says...
In last week's AAII sentiment survey, bullishness measured at 25.7% fell outside of one standard deviation below the long-term average bullish sentiment of 38.35%. Over the full 30-year survey period (1,552 weeks), the reading fell below one standard deviation (25.7%) 162 times. 87% of the time when the reading was below this level, the S&P 500 had an average positive return over the next twelve months of 13%.
The investment case becomes even more compelling when the AAII bullish reading drops below 20% (the three most recent cases marked with red circles on the chart above). This has happened in only 29 weeks out of 1,552 measured with the subsequent twelve month return in the S&P 500 being positive 93% of the time. The average advance was roughly 23%. The survey and subsequent positive stock market results support a contrarian investing strategy based on the notion that widespread pessimism offers a buying opportunity.
Surveys can be an important source of information for investors. This newsletter reaches thousands of active subscribers. This week, we ask two questions about the U.S. stock market. The more respondents, the more interesting and potentially accurate our survey results will be. Next week, we will publish the results and let you know what we conclude.
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This commentary and a sampling of previous editions are available as PDFs:
4/28/2017: And the Survey Says...
4/21/2017: Low Fees and Diversification Do Not Protect from Major Loss
4/14/2017: "Housing IS the Business Cycle"
4/7/2017: Bond Risk Rising with Rates
3/31/2017: Exclusive Stock Market, Higher Stock Price
3/24/2017: Indications of a Positive Stock Market Future
3/17/2017: Hallelujah, Reflation!
3/10/2017: Small Cap Stock Divergence
3/3/2017: Velocity Pivot Good for Stocks
2/24/2017: How Safe Are The Banks
2/17/2017: Climbing A Wall of Worry
2/10/2017: Value Shopper - Europe on Sale
2/3/2017: What, Me Worry
1/27/2017: Extraordinary Earnings Louder Than Trump
1/20/2017: It's Not All About Trump
12/30/2016: Predicting the Future -2017
12/2/2016: Trade What Is, Not What You Think It Should Be – 2017 Outlook