AAII Sentiment Survey: Optimists Ganging Up on Pessimists

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 3.2 percentage points to 42.4%. This is the 13th consecutive week and the 14th out of the last 15 weeks that bullish sentiment has been above its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.6 percentage points to 29.8%. This is a five-week high. Despite the increase, neutral sentiment is below its historical average of 31% for the seventh consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 0.6 percentage points to 27.8%. This is the 12th consecutive week and the 13th out of the last 14 weeks that bearish sentiment has been below its historical average of 30%.

The difference between bullish and bearish sentiment, the bull-bear spread, is at 14.6 percentage points. This is the second-narrowest spread of 2012, but also the 12th consecutive week that it has shown a positive, double-digit differential. The bull-bear spread stayed in positive double digits for 13 consecutive weeks between May 19, 2005 and August 11, 2005.

Continued signs of an improving economy and rising stock prices are giving AAII members reasons to stay optimistic about the short-term outlook for stock prices. Tempering this optimism are concerns about the slow pace of economic growth, rising gas prices, and Europe’s sovereign debt problems.

This week’s special question asked AAII members if they thought the stock market was presently fairly valued, or if they though the stock market was undervalued or overvalued. Respondents were evenly split between those who thought stocks were undervalued and those who thought stocks were overvalued. A smaller number said stocks were fairly valued. Those who thought the market was undervalued cited projected earnings growth and the overhang of the last recession as their rationale. Those who thought the market was overvalued cited high corporate profit margins, gas prices and the economy as their rationale.

This week’s AAII Sentiment Survey results:

Bullish: 42.4%, down 3.2 percentage points
Neutral: 29.8%, up 2.6 percentage points
Bearish: 27.8%, up 0.6 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