AAII Sentiment Survey: Bullish Sentiment PLUNGES

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 10.1 percentage points to 32.2% in the latest AAII Sentiment Survey. The percentage of investors who expect stock prices to rise over the next six months is at a five-week low. This is also the first time in four weeks that bullish sentiment is below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, soared 10.1 percentage points to 36.8%. This is the highest neutral sentiment has been since March 4, 2010. It is also the first time in five weeks that neutral sentiment has been above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, was unchanged at 31.0%. The historical average is 30%.

The sharp increase in neutral sentiment follows modest decline in stock prices and a continued climb in gasoline prices (NYSE:USO). Though bullish sentiment has been above its historical average for the last three weeks, optimism among individual investors has been cautious. Corporate earnings, a rebounding economy and the stock market’s rally have given individual investors hope, while the sluggish labor market, rising gasoline prices, federal deficit and global events are ongoing sources of concern.

This week’s special question asked AAII members how much impact the political wrangling about the federal deficit ceiling was having on their sentiment toward stocks. Responses varied from no impact to a significant impact. Some AAII members did not view the deficit issue as having an immediate impact, but thought it could adversely affect stock prices in the future if it is not dealt with.

I should point out that the survey period ran from Thursday, April 14, through Wednesday, April 20. The majority of the responses were provided prior to Standard & Poor’s issuing of a negative credit watch warning for the United States’ sovereign debt on Monday morning. There was no difference in the variance of responses before or after the warning was announced.

Here is a sampling of what AAII members said:

  • “As the reaction to the downgrade of U.S. debt by S&P showed this week, the political wrangling can have some temporary impact on stock sentiment.”
  • “I think it is significant, but I also believe there are enough grown-ups on both sides of the political aisle to not let the country default.”
  • “It adds a significant amount of uncertainty, which has a significant impact on the outlook for growth.”
  • “No impact on sentiment. The geopolitical events, resource demand versus supply, and worldwide financial risk are having the major effects on sentiment.”
  • “Not much impact yet, but give it a few weeks.”
  • “It is not having any effect on my sentiment, because this is what politicians do. No action and lots of talking.”

This week’s AAII Sentiment Survey results

  • Bullish: 32.2%, down 10.1 percentage points
  • Neutral: 36.8%, up 10.1 percentage points
  • Bearish: 31.0%, unchanged

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