The percentage of investors optimistic about the U.S. stock market jumped in the latest week, as early readings from the first-quarter earnings season pointed to strength in corporate America.
Still, a myriad of uncertainties kept the reading below its historical average.
According to the AAII Sentiment Survey, 37.8% of investors describe themselves as bullish, meaning they expect prices will be higher six months in the future. The reading represents an eight-week high, and growth of 11.7 percentage points from the previous week, although it is below the long-term average of 38.5%.
Bullishness, which hit a seven-year high earlier this year, has come down significantly of late, as investors grapple with the prospect of changes to trade policy and geopolitical tensions surrounding Syria. Optimism has been below the historical average for eight straight weeks, including the current reading.
Often, investors interpret sentiment surveys as contrary indicators, with high levels of optimism being seen as a sign of complacency.
The spike in optimism came amid positive trading in the equity market. The Dow Jones Industrial Average DJIA, -0.17% is up 0.7% over the past week, while the S&P 500 SPX, -0.19% is up 1.1% and the Nasdaq Composite Index COMP, -0.47% is up 1.4%. Much of these gains can be attributed to the first-quarter earnings season, which is expected to be the strongest, in terms of growth rates for both earnings and revenue, in several years. A number of key companies, including Netflix NFLX, +0.44% and Goldman Sachs GS, +0.20% , have reported stronger-than-expected results, though not all of them saw their stocks rise in the immediate aftermath.
Pessimism fell by 13.5 percentage points to 29.2% in the latest week, dropping below its long-term average of 30.5% for the first time in four weeks, AAII wrote. Last week, the ratio of bears hit its highest level since March 2017.
The optimism and pessimism gauges have been extremely volatile of late, seeing steep swings on a near-weekly basis, reflecting the movement seen in equities themselves, which have largely traded in a wide range for weeks, repeatedly testing both extremes of that range.
The most notable and stable sentiment reading has been the neutral one, which reflects the percentage of investors who expect stocks to be more or less unchanged in six months. This measure has been creeping up for weeks; in the latest reading, it rose 1.8 percentage points to 33%, above its long-term average of 31% for a ninth straight week.