AAII Sentiment Survey: Above Average Bears for Ten Out of Eleven Weeks

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.4 percentage points to 35.5% in the latest AAII Sentiment Survey. Optimism that stock prices will rise over the next six months remained below its historical average of 39% for the third consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 1.2 percentage points to 32.7%. This is the third consecutive week that neutral sentiment is above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, increased 1.2 percentage points to 31.9%. The level of pessimism remains within a very tight right range for the fifth time in six weeks. The historical average is 30%.

Bearish sentiment has now come in above its historical average for 10 out of the last 11 weeks. Yet, over the same time period, more investors describe themselves as upbeat than downbeat. Combined, these indicators tell us that though individual investors, in aggregate, remain optimistic about the direction of stock prices, they are only cautiously optimistic. Positive sentiment from rising stock prices and better-than-expected earnings is being countered by rising gasoline and food prices, the uneven pace of the economic recovery and the federal deficit.

This week’s special question asked AAII members when the Federal Reserve will start to raise interest rates. Responses varied from as early as this June to after the 2012 presidential elections. The first quarter of 2012 was selected by the largest number of respondents, followed by the fourth quarter of 2011. An even number of respondents thought the first rate hike will either occur in the third quarter of 2011 or after the first quarter of 2012.

Here is a sampling of what AAII members said:

  • “If this summer produces consistent growth in prices, the Fed will raise rates after Labor Day.”
  • “Rates have been held artificially low and with inflation appearing in several sectors, the Fed will probably start to move rates up in the fourth quarter of this year.”
  • “First quarter of 2012, based on Fed Chairman Ben Bernanke’s press conference.”
  • “After the first quarter of 2012. The Fed will wait as long as they can in hopes of fueling the economy.”
  • “Fourth quarter of 2012. The Fed will not want to impact the elections, so they will hold out longer than they should.”

This week’s AAII Sentiment Survey results

  • Bullish: 35.5%; down 2.4 percentage points
  • Neutral: 32.7%; up 1.2 percentage points
  • 31.9%; up 1.2 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