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Neutral sentiment is at unusually high levels, a survey shows

Investors are stuck in a holding pattern at the moment. The trade wars that are taking place has pushed investor sentiment closer to a neutral position.

The AAII Investor Sentiment Survey saw a drop in the percentage of investors who are bullish compared to a week ago. This was not offset by a rise in bearishness since that saw a drop too.

This index meaures whether investors think the market will rise or fall over the next 6 months.

The AAII Investor Sentiment Survey showed that 34.7% of investors describe themselves as optimistic on U.S. stocks, defined as their expecting prices to be higher in six months. This represents a decline of 8.4 percentage points from the previous week; that decline was enough to return the reading under its long-term average of 38.5%.

The drop in bullishness didn’t correspond with a rise in bearishness, however. This reading also saw a week-over-week decline; 24.9% of those polled said they were pessimistic about the market over the coming six months, a drop of 4.2 percentage points from the previous week. This put the reading further below its historical average of 30.5%.

The biggest change on the week related to neutral sentiment, or the view that prices should remain essentially unchanged over the remainder of the year. More than 40% of those polled described themselves a neutral, a two-month high, and a level that AAII described as “unusually high,” meaning it is at least one standard deviation above the historical average of 31%

Neutral sentiment prevailed in the market for a number of weeks now. The escalation in the trade war has investors on edge. The economy is on solid footing as supported by the corporate earnings that are coming in. However, increasing rhetoric out of President Trump, with his proclamation that he is going to levy more than $500 billion in tariffs on China, is negating investors feelings about the economy.

Trump also has issued threats against the Eurpoean Union over trade inbalance.

This should be a time when the market is running higher.

According to FactSet, with 16.4% of the S&P 500 having reported, companies are posting earnings growth of 21% and revenue growth of nearly 8.5%.

We are seeing a fairly significant jump in earnings growth yet the market is mired in a trading range.

This will most likely continue until the market gets some clarity on the trade situation. As long as that is hanging over investors heads, they will be cautious, if not outright feargul.

https://www.marketwatch.com/story/trade-uncertainty-prompts-spike-in-investor-caution-2018-07-20