And the Survey Says...

May 2

Every week for the past thirty years, the American Association of Independent Investors (AAII) surveys its membership to measure if investors believe the stock market will be higher (Bullish), the same (Neutral) or lower (Bearish) over the next six months. With the exception of the two and half weeks following the presidential election, investors have felt below-average bullishness for the past two years.

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.

Will the stock market have a -30% or greater bear market in the next FIVE years

YES NO

What is the best way to avoid the next bear market?

Hold cash

Ride it out

Own alternative investments (real estate, private businesses, etc.)

Hire an investment manager who will sell stocks when risk is elevated

We look forward to sharing the results with you next week. Please take the time to indicate your answers to the questions above so our survey results are broadly representative of a significant number of investors.

We invite you to call or email anytime if you have questions about how we can help you with your wealth management. Please give us a call at (415) 249-6337 or email us at info@uscapitalwm.com to learn more.