AAII Sentiment Survey: Pessimists Stay on Top

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded 5.5 percentage points to 38.6%. Even with the improvement, optimism remained below its historical average of 39% for the third consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, declined 0.9 percentage points to 26.7%. This is an eight-week low for neutral sentiment. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 4.7 percentage points to 34.8%. Even with the decrease, this is the fourth consecutive week, and the 36th out of 42, that bearish sentiment has been above its historical average of 30%.

The ongoing market volatility, combined with slow economic growth, the European sovereign debt crisis and Washington politics, continues to leave many AAII members frustrated and cautious. Improvements in optimism this year have proven to be fragile in part due to the headline-driven nature of the current market climate. It should also be noted that many individual investors have responded by becoming more conservative with their portfolio allocations, as was evident in our November Asset Allocation Survey.

This week’s special question asked about last week’s coordinated central bank move to provide liquidity support to Europe. Specifically, we asked if AAII members if the announcement made them more or less optimistic that the events in Europe won’t negatively impact the U.S. economy. Responses were split with the largest number of respondents saying they were less optimistic.

Here is sampling of the responses:

  • “Less optimistic. I have seen no evidence to date that the European leaders know what to do to reduce the effects of a debt de-leveraging cycle.”
  • “I’m less optimistic because such a move implies that the credit markets were very close to freezing up.”
  • “Neither. I think the underlying problem of too much debt remains unaddressed.”
  • “I’m a little more optimistic.”

This week’s AAII Sentiment Survey results:

  • Bullish: 38.6%, up 5.5 percentage points
  • Neutral: 26.7%, down 0.9 percentage points
  • Bearish: 34.8%, down 4.7 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