AAII Sentiment Survey: More New Highs for Investor Pessimism

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 1.1 percentage points to 25.6% in the latest AAII Sentiment Survey. Expectations that stock prices will rise over the next six months remained at the lowest level registered since August 26, 2010. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 0.9 percentage points to 33.0%. This is the sixth consecutive week that neutral sentiment has been above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, edged up 0.1 percentage points to 41.4%. Pessimism was last higher on September 2, 2010. Bearish sentiment has now been above its historical average of 30% for 13 out of the last 14 weeks.

The continuing volatility in the markets is dampening individual investors’ enthusiasm for stocks. (The uneven pace of the economic recovery, still high gas prices and European sovereign debt issues are not helping either.) This can be seen in the bullish sentiment readings, which have fallen for four consecutive weeks and have been below average for six consecutive weeks. Even with the decline, bullish sentiment is just slightly beyond one standard deviation of its historical norm, making the current reading atypical, but still not an outlier.

This week’s special question asked AAII members which sectors and industries they like right now. Energy (NYSE:XLE) was named by the largest number of respondents, followed by health care (NYSE:XLV) and technology (NASDAQ:QQQ). When the same question was asked in February, AAII members said they liked energy, technology and commodities (NYSE:RJI)/basic materials (NYSE:XLB).

This week’s AAII Sentiment Survey results

  • Bullish: 25.6%, down 1.1 percentage points
  • Neutral: 33.0%, up 0.9 percentage points
  • Bearish: 41.4%, up 0.1 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