Sentiment Update: Pullback in Bullish Sentiment but Confidence Remains Elevated

Both investor sentiment surveys I follow showed a pullback in bullish sentiment for the week. The NAAIM (active money managers) survey for this week showed a minor decrease of 1.6% in bullish sentiment while the AAII (individual investors) survey showed a more robust 11.6% decrease. The AAII bullish sentiment reading of 51.6% is still more than one standard deviation above average however down from last week’s +2 standard deviation reading.

This week, active managers have, on average, an 80% allocation to equities. This is down from 82% last week. The median allocation fell to 85% while the top quartile of active managers have an allocation of 100% or greater to equities with the bottom quartile down to a 55% or less equity exposure. The eight week moving average is now at 71%. The 80% bullish allocation while lower than last week is still high by historical standards. The NAAIM survey started in July of 2006 giving us 234 weekly readings. The current 80% allocation is 28th highest all time; top 12%. The two week average of 81% is the 15th highest two week average putting it in the top 6.4%.

The NAAIM number measures current equity exposure (0% would be all cash, 100% fully invested). Additional detail can be found here.

Individual investor’s bullish sentiment fell to 52% this week from 63% in the prior week. Bearish sentiment rose to 20% from last week’s reading of 16%. The Bull-Bear spread is at 32%, well above the series average of 9%. The eight week moving average of bullish sentiment increased to 51%.

While investor sentiment in both surveys fell this week they remain at historically high levels. Bullish sentiment in both surveys is greater than one standard deviation from average.

For analysis of the subsequent equity returns based on sentiment surveys please see the flowing links. AAII research here and NAAIM research here.

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