AAII Sentiment Survey: A New Short Term High for Bears

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.7 percentage points to 30.8% in the latest AAII Sentiment Survey. This is the lowest level of optimism in eight weeks. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 1.1 percentage points to 33.7%. This is the fourth consecutive week that neutral sentiment has been above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, is at an eight-week high, rising 3.6 percentage points to 35.5%. Bearish sentiment has been above its historical average of 30% for 11 out of the past 12 weeks.

The underlying worry about the direction of the stock market intensified this week, as can be seen by the increase in bearish sentiment. At the same time, the level of cautious optimism continued to erode as bullish sentiment declined for the fourth time in five weeks. Positive sentiment from better-than-expected earnings has been countered by rising prices, the uneven pace of the economic recovery, the federal deficit and recent volatility in stock prices.

This week’s special question asked AAII members how the current price of gasoline, which is averaging approximately $4 per gallon nationally, is affecting their six-month outlook for stocks. The majority of respondents said it was having a negative impact. A sizeable minority said it was not impacting their outlook. Several others predicted that gasoline prices will fall. Oil prices declined during the survey period and this may have had some impact on the results.

Here is a sampling of what AAII members said:

  • “It’s like an extra tax on consumers, which negatively impacts the economy.”
  • “Consumers will have to cut back on expenditures. Stock prices will drop slightly.”
  • “The longer the price stays at this level, the slower the economy will grow.”
  • “Gas prices are starting to go down, but not enough. Gas shouldn’t have much overall effect on stocks.”
  • “It has already been discounted by the financial markets.”
  • “I’ll avoid driving.”

This week’s AAII Sentiment Survey results

  • Bullish: 30.8%; down 4.7 percentage points
  • Neutral: 33.7%; up 1.1 percentage points
  • Bearish: 35.5%; up 3.6 percentage points

Historical Averages

  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30%

Charles Rotblut is the author of the new book Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio. The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at http://www.aaii.com/sentimentsurvey