AAII Sentiment Survey: Investor Optimism Climbs for Stocks

Bullish sentiment, expectations that stock prices will rise over the next six months, has exceeded bearish sentiment for the first time since the end of July. The percentage of individual investors who expect stock prices to rise over the next six months continued its slow upward climb, up 2.2% to a six-week high of 38.6%. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, increased 6.4 percentage points to 29.0%. Even with the strong upward bump this week, neutral sentiment has been below its historical average of 31% for seven consecutive weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 8.6 percentage points to 32.3%. While this is the 25th time in 28 weeks that pessimism has been above its historical average of 30%, the 8.6 percentage point drop is the largest single week decline in bearish sentiment since December 23, 2010.

All of the sentiment readings are now within a few percentage points of their long-term averages.

This week’s special question asked AAII members how much, if any, margin of error they were factoring into third- and fourth-quarter earnings estimates. Many respondents thought analyst forecasts were between 5% and 20% too high. Others thought the profit projections would be pretty close to the actual results. Some individual investors thought the estimates would end up being wrong, but were unsure by how much.

Here is a sampling of the responses:

  • “I believe they are 10% to 15% too high. Analysts will soon start revising forecasts down.”
  • “The earnings forecasts have been too optimistic and are not taking into account the recent downtrend.”
  • “I don’t usually put a percentage on the error, but I always assume earnings estimates are on the high end.”
  • “Analysts will be wrong for sure, but I’m not smart enough to know which way.”
  • “Typically, analysts miss actual earnings 70% of the time. I don’t pay much attention to earnings estimates any more.”

This week’s AAII Sentiment Survey results:

  • Bullish: 38.6%, up 2.2 percentage points
  • Neutral: 29.0%, up 6.4 percentage points
  • Bearish: 32.3%, down 8.6 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