AAII Sentiment Survey: Investors are Feeling the Lazy Days of Summer

Bullish sentiment, expectations that stock prices will rise over the next six months, edged up 0.5 percentage points in the latest AAII Sentiment Survey. This week’s reading of 39.9% keeps optimism close to its historical average of 39% for the second consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, fell 1.9 percentage points to 29.5%. This is a four-week low for neutral sentiment. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.4 percentage points to 30.6%. This is a four-week high. The historical average is 30%.

Both bullish and bearish sentiment are close to their historical averages. Optimism about better-than-expected second-quarter earnings is tempered by concerns about the slow pace of economic growth, the lack of a resolution to the U.S. debt ceiling debate and European sovereign debt.

This week’s special question asked what the chances were of a third round of stimulus from the Federal Reserve. Responses varied, though the largest number of respondents said the odds were low (less than a 35% chance). A smaller, but significant group said the odds were high (greater than 65%). Several said it was essentially a coin toss (between a 40% and a 60% chance).

Here is a sampling of the responses:

  • “Depends on the economy. If the economy continues to stall, the Fed will act.”
  • “High. With the economy continuing to languish, the Fed will likely provide a new round of stimulus.”
  • “Hopefully low. Monetary stimuli have had very little effect on the economy so far.”
  • “I think the chances are low. The economy is improving, albeit slowly. As long as there is improvement, the Fed can’t justify QE3.”
  • “I think the chances are very high. As much as I favor free markets and decreased taxes, this is an upcoming election year.”
  • “Stimulus efforts have not worked so far in creating employment. I doubt they will repeat the same policy.”

This week’s AAII Sentiment Survey results:

  • Bullish: 39.9%, up 0.5 percentage points
  • Neutral: 29.5%, down 1.9 percentage points
  • Bearish: 30.6%, up 1.4 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