AAII Sentiment Survey: Investors Remain Averse to Stocks

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded 6.3 percentage points to 33.4% in the latest AAII Sentiment Survey. Even with the improvement, optimism that stock prices will rise over the next six months remained below its historical average of 39% for the 14th time in the last 17 weeks.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, fell 1.2 percentage points to 21.8%. This is the lowest neutral sentiment has been since February 3, 2011. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped 5.1 percentage points to 44.8%. This is the 22nd time in the past 25 weeks that bearish sentiment has been above its historical average of 30%.

Even with this week’s decline, bearish sentiment remains at high, though not excessive, levels. Pessimism is more than one standard deviation above its historical average, which makes it unusual, but not extraordinary.

The high level of pessimism shows that individual investors remain worried that stock prices could fall further. The improvement in bullish sentiment does signal that some believe the brunt of the recent declines is over (or is nearing an end), however. Headline risk remains problematic, especially with many individual investors previously concerned about the pace of economic growth and the federal deficit, prior to the start of the current market correction.

This week’s special question asked if the Federal Reserve or the President/Congress should introduce new stimulus to accelerate growth, and if so, what type (e.g., buy more Treasuries, spend on infrastructure, extend the payroll tax cut). AAII members responded with a variety of ideas. The most popular were spending on infrastructure, extending the payroll tax holiday and reforming taxes and/or lowering them.

A minority said the government should not provide any additional stimulus. The deficit and a sense that prior stimulus has not worked were commonly listed as reasons for objecting. Some members thought the government should cut spending.

This week’s AAII Sentiment Survey results:

  • Bullish: 33.4%, up 6.3 percentage points
  • Neutral: 21.8%, down 1.2 percentage points
  • Bearish: 44.8%, down 5.1 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