AAII Sentiment Survey: Bulls Keep Lusting for Stocks

Bullish sentiment, expectations that stock prices will rise over the next six months, improved 1.8 percentage points to 43.6% in the latest AAII Sentiment Survey. This was the third consecutive weekly increase and it puts optimism at a seven-week high. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, remained essentially unchanged for the second consecutive week at 27.6%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 2.2 percentage points to 28.8%. This was the third consecutive decline in pessimism, which is now at a seven-week low. The historical average is 30%.

The stock market’s ability to shrug off bad news—including Japan (NYSE:EWJ), European debt, rising commodity (NYSE:RJA) prices and the threat of a government shutdown—is helping individual investors regain their confidence in the short-term direction for stock prices. It should be noted, however, that both bullish and bearish sentiment are still close to their historical averages. Therefore, I would describe individual investors as being optimistic, but cautiously so.

This week’s special question asked AAII members about their expectations for first-quarter earnings. The consensus was that first-quarter profits will be good. Some respondents, however, expressed concern about the impact higher inflation could have on earnings for the remainder of the year.

Here is a sampling of what AAII members said:

  • “First-quarter earnings should be very strong.”
  • “I believe that pending the end of the Fed’s quantitative easing program, we will generally see strong earnings.”
  • “First-quarter earnings will generally be okay. Second- and third-quarter earnings will be more interesting.”
  • “I will be watching for accompanying guidance about second-quarter earnings, especially warnings about rapidly escalating input costs.”

This week’s AAII Sentiment Survey results

  • Bullish: 43.6%, up 1.8 percentage points
  • Neutral: 27.6%, up 0.4 percentage points
  • Bearish: 28.8%, down 2.2 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