AAII Sentiment Survey: Investor’s are Still Skittish About Stocks

Individual investor sentiment turned bearish after Labor Day weekend. Bullish sentiment, expectations that stock prices will rise over the next six months, measured 30.2% this week, reversing a four-week trend of steady weekly increases in bullish sentiment. Bullish sentiment is now 8.8 percentage points below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, increased 0.5 percentage points to 29.5%. Neutral sentiment has been below its historical average of 31% for eight consecutive weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, climbed by 8.0 percentage points to 40.3%. Bearish sentiment has been above its historical average of 30% for eight straight weeks, and it has been above its historical average for 26 out of the last 29 weekly readings.

This week’s special question asked AAII members if there are any economic or market-related catalysts they are looking for over the next few months. Many respondents discussed the need for improvement in the employment environment, but said they were frustrated by gridlock and partisan politics in Washington. Investors expressed some hope that the Fed will help strengthen the U.S. economy if it continues to weaken, while stating that European central banks need to work to resolve the financial crisis (NYSE:XLF) abroad. A few respondents expressed little hope, and stated that they expect a collapse of the dollar (NYSE:UDN) or the euro (NYSE:FXE).

Here is a sampling of the responses:

  • “I am looking for Congress to set aside partisan politics and start leading the country forward, not left or right. Just lead, and the people and the economy and the markets will follow.”
  • “An improvement in employment numbers is what I am looking for. But since Congress doesn’t seem to be interested in job creation, I will continue my ‘little risk, little reward’ investment strategy.”
  • “Job creation. We need Americans to be employed.”
  • “The key to a recovery is improvement in the foreclosure rate and housing market.”
  • “I’m expecting the Fed to save the day, like always.”
  • “Resolution of Europe’s financial crisis and U.S. development of a manageable debt-reduction plan.”
  • “More jobs!!!!!!!!”

This week’s AAII Sentiment Survey results:

  • Bullish: 30.2%, down 8.4 percentage points
  • Neutral: 29.5%, up 0.5 percentage points
  • Bearish: 40.3%, up 8.0 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