The "Neutral" Camp Gets
Even More Popular
The latest survey of individual investors
from AAII showed another increase in neutral responses - those with no
particular directional bias for stocks over the next six months.
That goes hand-in-hand with an increase in
neutral responses from newsletter writers in the Investor's Intelligence
When we combine the two, we can clearly
see that currently there are a lot of noncommittal folks out there.
Such a spike in uncertainty seems out of
place given that the S&P 500 was recently sitting at a 52-week high.
In fact, over the past 25 years, that has been unusual. There has
been a combined 65% or greater percentage of neutral responses in those
two surveys when the S&P had hit a 52-week sometime in the past month on
28 separate occassions.
The second chart shows how the S&P 500
performed over the next 52 weeks after those 28 occurrences. In
the top pane, the blue line shows the percentage of time the S&P was
positive, and the gray line is the "control" - how the S&P performed
after any recent 52-week high (not just the ones with high neutral
The bottom pane is basically the same
thing, but shows the S&P's average return instead of the percentage of
time it was positive.
The index tended to under-perform random
during the first six months or so. After 17 weeks, for example,
the S&P was positive 54% of the time compared to 76% of the time after a
random 52-week high. Its average return was also well below
After that, it was mostly in line with
random, even out-performing a bit longer-term. Its best
performance was 37 weeks later when it was positive 95% of the time with
an average return of +10.5%, both above-average.
Overall, there doesn't appear to be
anything too compelling about the surge in neutral responses. It
would be better for the market if investors continued to step in
instead of step away, however.