AAII Sentiment Survey: Bulls Stutter

Bullish sentiment, expectations that stock prices will rise over the next six months, slipped 1.4 percentage points to 42.2% in the latest AAII sentiment survey. Optimism that stock prices will rise over the next months stayed within a two percentage point range for the third consecutive week. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, edged down 0.8% to 26.8%. This is a nine-week low for neutral sentiment. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.1 percentage points to 31.0%. The historical average is 30%.

Individual investors remain optimistic about the short-term direction for stock prices, although cautiously so. Bearish sentiment received a boost from last week’s federal budget battle and a small decline in stock prices, but both optimism and pessimism remain near their historical averages. Corporate earnings, a rebounding economy and the stock market’s rally are giving individual investors hope, while the sluggish labor market and global events are keeping them from being overly sanguine.

This week’s special question asked AAII members about their longer-term view. Specifically, they were asked whether there was more potential upside or downside for stocks over the next 12 to 24 months. Respondents were divided, with slightly more anticipating a further rise in stocks prices than those who thought stock prices will fall. A small number thought stocks would fluctuate and not show big gains or losses.

Here is a sampling of what AAII members said:

  • “Our recovery is still in the early stages. The potential for stocks is positive.”
  • “There is more potential for gains over the next 12-24 months as the economy gains steam.”
  • “We are in a secular bear market, and I foresee a huge downside for stocks.”
  • “I think there is more potential downside for stocks. I base this on the Middle East conflicts and the current presidential administration’s economic policies.”
  • “I anticipate a volatile market where selectivity will be important.”

This week’s AAII Sentiment Survey results

  • Bullish: 42.2%, down 1.4 percentage points
  • Neutral: 26.8%, down 0.8 percentage points
  • Bearish: 31.0%, up 2.1 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