AAII Sentiment Survey: Do Investors See a Double Dip Recession?

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 8.5 percentage points to 37.5% in the latest AAII Sentiment Survey. This is an eight-week high for optimism that stock prices will rise over the next six months. It is also, however, the 10th consecutive week that bullish sentiment has been below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, declined 1.4 percentage points to 26.8%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped 7.0 percentage points to 35.7%. This is a three-week low for pessism. Nonetheless, bearish sentiment is above its historical average for the 17th time in 18 weeks.

An end to the market’s six-week losing streak gave individual investors hope that stock prices are stabilizing. Even with the improvement in sentiment, pessimism remains high and is above average for the longest period of time in approximately a year. (Bearish sentiment never dipped below 30% during the 18-week period of from May 13 to September 9, 2010.) The failure of Washington to reach an agreement on the debt ceiling and the slow pace of economic growth remain key concerns for individual investors.

This week’s special question asked AAII members if the economy has merely slowed or if the risks of a double-dip recession have increased significantly. Approximately two-thirds of respondents said the economy has slowed, but will not fall into a double-dip recession. One-third said the risks of a double-dip recession have increased.

Here is a sampling of the responses:

  • “The economy has only slowed—it would take another economic shock to take us back into a recession.”
  • “The economy has merely slowed, in part due to Washington’s wrangling. Resolve the debt ceiling so we can move on.”
  • “The risk of another recession has increased, but I believe there is still less than a 50% chance of it occurring in the next 12 months.”
  • “The risks of a double-dip recession have significantly increased. The government does not know how to fix the economy.”
  • “However the recession is described, the economy cannot recover until millions of decent paying jobs are created.”

This week’s AAII Sentiment Survey results

  • Bullish: 37.5%, up 8.5 percentage points
  • Neutral: 26.8%, down 1.4 percentage points
  • Bearish: 35.7%, down 7.0 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