AAII Sentiment Survey: Investors Are Most Bearish in Six Months

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 7.5 percentage points to 28.5% in the latest AAII Sentiment Survey. This is the lowest optimism has been since August 26, 2010. It is also the fourth consecutive week that bullish sentiment has been below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, edged down 0.3 percentage points to 31.4%. This is the second consecutive week that neutral sentiment has been slightly above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 7.8 percentage points to 40.1%. This is the highest pessimism has been since September 2, 2010. Bearish sentiment has now been above its historical average of 30% for four consecutive weeks.

The continued volatility in the markets is clearly taking a toll on individual investors’ attitudes, as can be seen by today’s numbers. Neither bullish nor bearish sentiment are at levels that would be considered contrarian, however, based on the survey’s historical results. Nonetheless, if the S&P 500 is in the midst of a correction, it is likely we could continue to see elevated levels bearish sentiment until a short-term floor for stock prices is found.

This week’s special question asked AAII members if the Federal Reserve should be more aggressive in fighting inflation or if the central bank should stay focused on the economy. Approximately half of respondents said the Fed should shift its focus towards fighting inflation. A sizeable minority thought the Fed was correct to keep its focus on stimulating the economy, however.

Here is a sampling of what AAII members said:

  • “I would like to see the Fed back off (on providing economic stimulus). I believe they are setting us up for inflation in the long run.”
  • “The Fed is already too late in fighting inflation. Gas and food inflation is just beginning.”
  • “I am not sure that aggressively fighting inflation is warranted at this point, but the Fed should stop stimulating the economy.”
  • “The Fed should continue to stimulate the economy because of problems in Europe, unrest in the Middle East and a possible slowdown in China’s economy.”
  • “Stimulating the economy is more important. Unemployment is still the number one problem for a consumer-based economy.”

This week’s AAII Sentiment Survey results

  • Bullish: 28.5%, down 7.5 percentage points
  • Neutral: 31.4%, down 0.3 percentage points
  • Bearish: 40.1%, up 7.8 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