AAII Sentiment Survey: Investor Optimism Returns

Bullish sentiment, expectations that stock prices will rise over the next six months, reached a six-month high in the latest AAII Sentiment Survey. Optimism jumped 7.0 percentage points to 43.0%. This is the second time in three weeks that bullish sentiment has been above its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 2.6 percentage points to 32.0%. This is the first time in 15 weeks that neutral sentiment has been above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 9.6 percentage points to 25.0%. This is the lowest level of pessimism since July 7, 2011. Bearish sentiment had been above its historical average of 30% for the previous 14 consecutive weeks.

This week’s numbers are a significant change from the trends we have been. Bullish sentiment is above average for only the fifth time out of the last 28 weeks. Bearish sentiment is below average for only the fourth time in the past 36 weeks. The spread between bullish and bearish sentiment (the bull/bear spread) is the most positive it has been since February 17, 2011.

Whether this is a distinguishing change in sentiment or just a temporary shift remains to be seen. Pessimism has declined for five consecutive weeks as October’s rebound in stock prices has helped to calm nerves. On the other hand, individual investors remain concerned about the pace of economic growth, the gridlock in Washington and European sovereign debt. (This week’s survey was completed before this morning’s announcement from Europe.) Thus, the optimism signal in this week’s survey is a cautious optimism.

This week’s special question asked AAII members whether they are looking at value, growth or dividend stocks. The overwhelming majority of respondents said they were looking at dividend stocks. Many cited the comparatively higher yields or the cushion against volatile market conditions that dividends offer. A small group expressed a preference for either growth or value stocks, and some said they were currently avoiding stocks altogether.

Here is a sampling of the responses:

  • “Dividend-paying, so I can at least get paid while waiting for an upward market move.”
  • “Dividend-paying stocks. I am retired and looking for income. In addition, these seem to be the safest segment of the market.”
  • “Dividend-paying. They are better than CDs, interest on banking accounts, and many bonds.”
  • “I have been interested in dividend stocks for almost two years. They provide a steady source of income, even in a very unpredictable market.”
  • “Dividend. Yields on these stocks seem attractive.”

This week’s AAII Sentiment Survey results:

  • Bullish: 43.0%, up 7.0 percentage points
  • Neutral: 32.0%, up 2.6 percentage points
  • Bearish: 25.0%, down 9.6 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