AAII Sentiment Survey: Individual Investors Turn More Cautious

Posted on August 15, 2013 | AAII Survey

Individual investor optimism fell and pessimism rose to levels not seen since late June, according to the latest AAII Sentiment Survey. Meanwhile, neutral sentiment continued its longest streak of above-average readings since the late 1990s.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.0 percentage points to 34.5%. This is a seven-week low. It is the second time in three weeks that bullish sentiment is below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, rose 3.5 percentage points to 37.3%. This is the 12th consecutive week and the 18th out of the past 21 weeks that neutral sentiment is above its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.5 percentage points to 28.2%. This fifth consecutive weekly increase puts pessimism at a seven-week high. Nonetheless, bearish sentiment is below its historical average of 30.5% for the seventh consecutive week and the 12th time in 15 weeks.

The bull-bear spread, which is bullish sentiment minus bearish sentiment, is now at 6.3. This is narrowest reading since June 26, 2013, when the bull-bear spread was -4.9.

We have not seen neutral sentiment mostly stay above 30.5% for an extended period of time since the late 1990s. During the period of September 4, 1997 through November 4, 1999, neutral sentiment was above 30.5% for 108 out of 114 weeks.

The continued elevated levels of neutral sentiment are indicative of the cautiousness exhibited by individual investors. Though many individual investors are encouraged by earnings growth, the ongoing economic expansion and rising stock prices, many others are concerned about the pace of economic and earnings growth, market valuations and a lack of progress on key issues by Congress and the president.

This week’s special question asked AAII members what they thought the odds of a pullback in stock prices occurring this month or next month were. We specifically asked them to state the odds on a range from very likely to very unlikely. Just over 3% of all respondents described the chances of a pullback occurring as either unlikely or very unlikely. In contrast, 19% said a pullback was very likely, 31% said a pullback was likely and 24% said a pullback was somewhat likely. The top reason was that the market has gotten ahead of itself. The second most commonly given reasons were a potential tapering in bond purchases by the Federal Reserve and a fight in Congress over the budget and the debt ceiling.

Here is a sampling of the responses:

  • “Somewhat likely. The market is very sensitive to the Federal Reserve’s actions and statements.”
  • “Likely. The market needs to consolidate and the slow time of the year should give it a chance.”
  • “Very likely. The market is too high and August and September are usually down months.”
  • “Very likely as Congress deals with debt ceiling issues.”
  • “Somewhat likely. The market has been up all year and some profit taking will likely come in.”

This week’s AAII Sentiment Survey results:

  • Bullish: 34.5%, down 5.0 percentage points
  • Neutral: 37.3%, up 3.5 percentage points
  • Bearish: 28.2%, up 1.5 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.5%
  • Bearish: 30.5%

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


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Posted on August 14, 2013 | Asset Allocation

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Posted on August 14, 2013 | Podcast

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Audio url: Sell of the week

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Posted on August 13, 2013 | Classroom

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Boiled down to its bare basics, investing concerns returns and risks.

An investor’s return consists of current income, plus capital gains due to growth, minus any losses from the investment.

Absent a crystal ball, investors can only make an educated guess as to what kind of return to expect. If an investor’s actual return turns out to be different than the return he expected, he could suffer an unexpected loss.

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Posted on August 13, 2013 | Podcast

AAII Journal Editor Charles Rotblut Editor explains to Chuck Jaffe of MarketWatch why Synaptics, Inc. (SYNA) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the week

Featured App and Reader Survey

Posted on August 12, 2013 | Computerized Investing

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This Week’s Question

When was the last time you upgraded your cell phone?

A) In the last year
B) More than one year ago, but less than two years ago
C) More than two years ago

Click Here to Answer »

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