AAII Sentiment Survey: Investors are Getting Very Negative About Stocks

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.0 percentage points to 37.8% in the latest AAII Sentiment Survey. This is the first time in four weeks that the percentage of individual investors who expect stock prices to rise over the next six months fell below the historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 1.2 percentage points to 30.7%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, edged up 0.8 percentage points to 31.4%. This is a five-week high for bearish sentiment. The historical average is 30%.

Bearish sentiment has yet to rise significantly in reaction to the ongoing debt ceiling standoff in Washington, D.C. AAII members told us in early July that they were more focused on corporate earnings than the debt ceiling. This said, many individual investors have previously expressed concern about the federal deficit and potentially higher interest rates in the future.

Though bullish sentiment is at a five-week low and bearish sentiment is at a five-week high, both indicators remain 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.

Individual investors have remained cautious about the direction of stock prices throughout most of the year. This is evident in bearish sentiment, which has been at or above its historical average for 20 out of the last 23 weeks.

This week’s special question asked AAII members if they thought the European Union (NYSE:EU) would be able to find a resolution to its sovereign debt problems (e.g., Greece). Responses were evenly split between those who thought a resolution would be found and those who thought a resolution would not be found. A few were not sure or didn’t believe they had enough information to form a judgment.

Here is a sampling of the responses:

  • “I am confident that the EU will find a ‘resolution’ to the sovereign debt problems. I wish I had an idea of what that ‘resolution’ will look like and when they will find it.”
  • “I am confident that the EU will eventually find a resolution, but it will probably be a long, bumpy road to get there.”
  • “I don’t know how it can be achieved with many budgets and taxing authorities and one currency! I am not confident.”
  • “Germany is going to pull the plug. I have no confidence at all that the European Union will have the ability to stem the flow of funds going out.”
  • “The short term will be difficult. I am more sanguine about the long term.”

This week’s AAII Sentiment Survey results:

  • Bullish: 37.8%, down 2.0 percentage points
  • Neutral: 30.7%, up 1.2 percentage points
  • Bearish: 31.4%, up 0.8 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