AAII Sentiment Survey: Optimism Recedes

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.1 percentage points to 42.4%. This is lowest level of optimism since December 29, 2011. Nonetheless, bullish sentiment is above its historical average of 39% for the 11th consecutive week and the 12th out of the last 13 weeks.

Neutral sentiment, expectations that stock prices will remain essentially unchanged over the next six months, slipped 0.1 percentage points to 28.6%. This is the fifth consecutive week that neutral sentiment has been below its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.2 percentage points to 29.0%. This is the highest level of pessimism since December 29, 2011. Even with the increase, bearish sentiment is below its historical average of 30% for the 10th consecutive week and the 11th out of the last 12 weeks.

Individual investor sentiment continues to be optimistic, even though bearish sentiment has risen during the three out of the past four weeks. Rising gasoline prices and a return of volatility to the markets on Tuesday intensified some of the underlying worries about the pace of economic growth and Europe’s sovereign debt problems. Even so, many individual investors remain more focused on signs that the economy is improving and the overall gains stocks have realized since last November.

This week’s special question asked AAII members if their 6 to 12 month outlook for U.S. economic growth has changed since last fall. Respondents were evenly split between those said they are now more optimistic about the economy and those who said their outlooks have not changed.

Here is a sampling of the responses:

  • “I am more positive as economic indicators have improved.”
  • “I do not believe the economic outlook has changed since last fall. We continue to limp along with high unemployment.”
  • “No change in my outlook; I still expect slow growth with an increasing risk of inflation.”
  • “I’m somewhat more optimistic for the U.S. economy, but there are too many outside influences (China, Iran, Europe, etc.) that could have a negative affect.”
  • “Yes, for the better, though I expect that this improvement will not favor all industries and sectors the same.”

This week’s AAII Sentiment Survey Results:

Bullish: 42.4%, down 2.1 percentage points
Neutral: 28.6%, down 0.1 percentage points
Bearish: 29.0%, up 2.2 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

To contact the reporter on this story: Charles Rotblut at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com