AAII Sentiment Survey: Streak of Investor Optimism Pulls Back

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.5 percentage points in the latest AAII Sentiment Survey. Optimism declined to 39.3%, putting it essentially even with its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, fell 2.1 percentage points to 31.4%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 4.6 percentage points to 29.2%. This was the first time pessimism has increased in five weeks. The historical average is 30%.

This week’s results showed a reversion to the mean, with all three readings near their historical averages. The weak June jobs report likely added to individual investors’ concerns about the pace of economic growth. The lack of progress on resolving the debt ceiling is not helping either. On the other hand, expectations for good second-quarter earnings and the ability of stocks to hold onto much of their recent gains are contributing to individual investors’ cautiously optimistic stance.

This week’s special question asked AAII members if they are looking at growth, value or dividend-paying stocks right now. Respondents overwhelming said they are looking at dividend-paying stocks. Some clarified by saying they were looking for a combination of dividends and value or dividends and growth. A few expressed a preference for primarily value or growth stocks.

Here is a sampling of the responses:

  • “Dividend-paying. I am retired and this adds to the income. In addition, in these uncertain times, the dividend provides a measure of assurance of return.”
  • “Looking for value and dividend yield. I don’t think this is the time for a broad market surge, and I don’t trust the growth stocks right now.”
  • “If the market is going nowhere for the next six months, then dividend-paying stocks appear to be a rational choice.”
  • “Value and dividend-paying, since both historically perform better in periods of rising interest rates.”
  • “Good value and growth stocks are very good investments for a bullish market outlook.”

This week’s AAII Sentiment Survey results:

  • Bullish: 39.3%, down 2.5 percentage points
  • Neutral: 31.4%, down 2.1 percentage points
  • Bearish: 29.2%, up 4.6 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