AAII Sentiment Survey: Bullish and Bearish Sentiment Gains

Bullish and bearish sentiment rise as neutral sentiment fell in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose by 2.0 percentage points to 35.5%. Even with the rise, optimism is below its historical average of 39.0% for the fifth time in six weeks.

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Neutral sentiment, expectations that stock prices will stay essentially unchanged, dropped by about 2.5 percentage points to 33.2%. This is the 20th time in 24 weeks that neutral sentiment is above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, increased by about half a percentage point to 31.3%. This marks three straight weeks of bearish sentiment being above its historical average of 30.5%.

Investors seem to be either increasingly bullish or increasingly bearish and the sentiment survey reflects that…

Bullish investors look to our dropping unemployment rate and positive numbers from Europe and see a market pullback as healthy while bearish investors are worried about the Syrian crisis and emerging market weakness. The sentiment survey has been volatile in recent weeks and I fully expect that trend to continue, especially with the upcoming debt ceiling debates, potential tapering in Fed bond-buying and impending Congressional deliberation on using U.S. military assets in Syria.

This week’s special question asked AAII members how the conflict in Syria is affecting their six-month outlook for stocks. More than half (52%) of respondents said the conflict wasn’t impacting or was having little impact on their short-term outlook. Nearly three out of 10 (27%) respondents said the conflict was causing them to be more negative. Several respondents said any impact on the market caused by a U.S. strike would only temporarily hurt stock prices, while others said their opinion may change depending on how future events play out. A few respondents thought a military strike could create a buying opportunity in the U.S. markets.

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Here is a sampling of the responses:

· “It does not affect my outlook for U.S. stock prices.”

· “There may be some intermediate, short-term negative volatility, but two to six months from now it will be business as usual in the stock market.”

· “If the conflict escalates, then there will be a significant negative impact on U.S. stocks.”

· “Not at all as things stand now; there is too little to go on.”

This week’s AAII Sentiment Survey:

· Bullish: 35.5%, up 2.0 percentage points

· Neutral: 33.2%, down 2.5 percentage points

· Bearish: 31.3%, up 0.5 percentage points

Historical averages:

· Bullish: 39.0%

· Neutral: 30.5%

· Bearish: 30.5%

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

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