AAII Sentiment Survey: Investor Pessimism Hits Short Term High

Bullish sentiment, expectations that stock prices will rise over the next six months, increased 0.3 percentage points to 33.0%. This is the second consecutive week that optimism has been below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, , fell 1.5 percentage points to 27.5%. This is the 19th time in the past 20 weeks that neutral sentiment has been below its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.1 percentage points to 39.4%. This is the highest level of pessimism since October 6, 2011. This is also the third consecutive week that bearish sentiment has been above its historical average of 30%.

Due to the timing of our survey (Thursday through Wednesday), it is too early to tell if Wednesday’s coordinated central bank action and the resulting rally have affected individual investor sentiment . The longer trends show a lasting cautiousness on the part of individual investors with bearish sentiment registering above-average readings for 35 out of the past 41 weeks. (The level of bearish sentiment exceeded the level of bullish sentiment 18 times during that period.) Market volatility, slow economic growth, European sovereign debt problems and Washington politics are all adversely impacting individual investors’ moods.

This week’s sentiment survey ask AAII members how, if at all, the congressional super committee’s failure to reach a compromise on a long-term deficit reduction plan affected their sentiment towards stocks. The majority of respondents said that it didn’t have an impact, though many had expected the committee to fail. A sizeable minority said the lack of compromise made them more bearish.

This week’s AAII Sentiment Survey results:

  • Bullish: 33.0%, up 0.3 percentage points
  • Neutral: 27.5%, down 1.5 percentage points
  • Bearish: 39.4%, up 1.1 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