AAII Sentiment Survey: Investor Pessimism is at Another High

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.1 percentage points to 26.7% in the latest AAII Sentiment Survey. This is the lowest level of optimism since August 26, 2010. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, slipped 1.7 percentage points to 32.0%. Nonetheless, neutral sentiment is above its historical average of 31% for the fifth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 5.8 percentage points to 41.3%. This is the highest level of pessimism since September 2, 2010. It is also the 12th time in 13 weeks that bearish sentiment has been above its historical average of 30%.

The volatility in stock prices, recent drop in commodity prices (NYSE:RJI) and continued high cost of gasoline have taken their toll on investor confidence. Though bearish sentiment is more than 11 percentage points above average, it is not at levels that would suggest investors are overly pessimistic. Rather it is just one standard deviation away from its average, making the current reading atypical, but not an outlier.

This week’s special question asked AAII members whether the U.S. economy is doing better or worse than government statistics indicate. The only thing close to a consensus among the responses was an opinion that the data is not accurately reflecting the health of the economy. (A small number of respondents, however, took the opposite stance and thought the data was accurately portraying the economy.)

Among those who thought the data was incorrectly describing the economy, the largest proportion described conditions as being worse than indicated. Many, however, said the economy is performing better than the official statistics show.

Here is a sampling of what AAII members said:

  • “Worse. Real inflation is higher than the government’s Consumer Price Index (NYSE:CPI) indicates.”
  • “Worse. Economic undercurrents don’t always show up in the reports. Anecdotal evidence points to people not doing as well as may be expected.”
  • “I think the economy is doing better than the press reports it is doing. Sentiment is more negative than the numbers would indicate.”
  • “It seems to me that things are actually better than the market or the media would have us believe.”
  • “I’m skeptical of the government data at any time—bull or bear market.”
  • “The fact that it is still functioning is a marvel to me. So, the economy is doing better than the worst reports, but not as well as I would like it.”

This week’s AAII Sentiment Survey results

  • Bullish: 26.7%, down 4.1 percentage points
  • Neutral: 32.0%, down 1.7 percentage points
  • Bearish: 41.3%, up 5.8 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