AAII Sentiment Survey: Bullish Sentiment Rises, Stays Above Historical Average

Bullish sentiment rose 2.3 points to 49.7% in the latest AAII Sentiment Survey. Optimism among individual investors that stock prices will rise over the next six months remained above its historical average of 39% for the 13th consecutive week.

Neutral sentiment, expectations that stock prices will be essentially unchanged over the next six months, fell 3.8 percentage points to 24.1%. This was the 17th consecutive week that neutral sentiment has been below its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.5 percentage points to 26.2%. Pessimism has been below its historical average for 10 out of the last 12 weeks.

Though the markets have been volatile on a day-to-day basis, the S&P 500 is at approximately the same level it was at the start of November. The ability of stocks to hold onto their gains despite fears about U.S. monetary policy and European sovereign debt problems is helping individual investors remain upbeat about the short-term prospects for stocks. It should be noted that our November Asset Allocation Survey showed AAII members increased their allocations to stocks and stock funds for the fourth consecutive month.

As stated above, bullish sentiment is above its historical average for the 13th consecutive week. This is the longest streak of above-average readings since 2004, when bullish sentiment stayed above its historical average for 19 consecutive weeks. What happened afterwards? Stocks were volatile, with the S&P 500 falling by more than 75 points, but six months after the streak ended, the large-cap index was essentially unchanged.

This week’s special question asked AAII members for their thoughts about the holiday shopping season and whether sales will influence their expectations for stocks in general. The majority of respondents expect retail sales to be up this holiday season, especially relative to last year. At the same time, most respondents said that retail sales would not influence their attitudes about direction of stocks overall. There were dissenters, however, with some expecting better-than-forecast sales to drive stocks higher and a few warning that disappointing results would be a negative for the market.

Here is a sampling of the results:

“This season will be better than last for retail stocks, but it will not impact stocks in general.”
“Retail sales will be better than last year, but holiday shopping will not influence my expectations for stocks in general.”
“Sales will be higher than last year and this will help drive stocks higher.”
“Retail sales will be greatly improved versus last year. If not, this will likely impact the direction of the stock market to the negative.”

This week’s sentiment survey results:

Bullish: 49.7%, up 2.3 percentage points
Neutral: 24.1%, down 3.8 percentage points
Bearish: 26.2%, up 1.5 percentage points

Historical averages:

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

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