AAII Sentiment Survey Shows Bullish Sentiment Rebound

The AAII Sentiment Survey shows a rebound in bullish sentiment, with a 3.6 percentage point increase, while neutral and pessimistic sentiment decreased. Individual investors are more optimistic about the short-term outlook for stocks, with a focus on the next six months.

The American Association of Individual Investors (AAII) Investor Sentiment Survey reported a notable rebound in bullish sentiment, with a 3.6 percentage point increase from the previous week. This uptick in optimism comes as individual investors become more confident in the short-term outlook for stocks, particularly over the next six months.

The survey, conducted weekly since 1987, found that bullish sentiment rose to 40.3%, while bearish sentiment decreased to 33.0% and neutral sentiment fell to 26.7% [2]. This shift in investor sentiment coincides with a week marked by strong earnings reports and positive trade developments.

Key earnings highlights included Alphabet (GOOG) beating expectations with a double-digit gain in revenues, and Meta (META) and Microsoft (MSFT) surpassing market expectations on both top and bottom lines [2]. These positive earnings reports have fueled the recent rally in the S&P 500 and Nasdaq 100, which both hit new all-time highs this week [1].

In addition to strong earnings, the U.S. President Donald Trump announced a trade deal with Japan, reducing the auto tariff rate to 15% from 27.5% and 15% on other duties starting August 1st. This deal also included a $550 billion investment package by Japan in the United States [3]. Furthermore, President Trump is set to meet with EU leader Ursula von der Leyen in Scotland on Sunday, potentially signaling a shift in trade policies with the European Union.

Despite these positive developments, the market remains cautious. The S&P 500 futures contract is trading near a record 6,469, with resistance around 6,460 and support near 6,400 [1]. The Volatility Index (VIX) fell to a local low of 14.70 on Tuesday before rebounding to 17.3, indicating a potential short-term market top [1]. Additionally, some analysts suggest that the market may be nearing the end of its short-term seasonal strength [1].

Investors should remain vigilant and consider a systematic approach to investing, such as the Volatility Breakout System, which has shown solid performance in capturing major market moves while avoiding day-to-day fluctuations [1]. With the market continuing to advance, defensive positioning may become increasingly important in the weeks ahead.

References:
[1] https://www.investing.com/analysis/sp-500-can-the-recordbreaking-rally-last-200664649
[2] https://seekingalpha.com/news/4475568-bullish-sentiment-rises-this-week-shows-new-aaii-data
[3] https://www.schwab.com/learn/story/weekly-traders-outlook