AAII Sentiment Survey: Individual Investors A Little Less Pessimistic

Posted on October 25, 2012 | AAII Survey

Individual investors became a little less pessimistic in the latest AAII Sentiment Survey, though bearish sentiment remains at unusually high levels.

Bullish sentiment, expectations that stock prices will rise over the next six months, edged up 0.6 percentage points to 29.2%. This is the first time since July 26, 2012, that optimism is below 30% on consecutive weeks. It is also the ninth consecutive week and the 29th out of the last 30 weeks that bullish sentiment is below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 0.9 percentage points to 27.7%. This is the first time since March 22, 2012, that neutral sentiment is below 30% on consecutive weeks. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined 1.5 percentage points to 43.1%. This is the first time since July 26, 2012, that pessimism is above 40% on consecutive weeks. It is also the ninth consecutive week and the 25th out of the last 29 weeks that bearish sentiment has been above its historical average of 30%.

Year-to-date, bullish sentiment has averaged 35.9%. This puts bullish sentiment on pace for its lowest average weekly reading since 2008, when optimism averaged 34.1%.

Bearish sentiment remains at unusually, but not extraordinarily, high levels. The recent downside volatility and lackluster third-quarter earnings season is further dampening the moods of those investors who were already concerned about the pace of economic growth, Europe’s sovereign debt problems and the possibility of the fiscal cliff occurring. It is also possible that nervousness about the outcome of the election is having some impact on the results.

This week’s special question asked AAII members if the stock market is presently fairly valued, undervalued or overvalued. Slightly less than half of the respondents said the market was overvalued. The current or expected level of corporate earnings was the primary reason why they thought stocks were too expensive, though many cited the economy, the Federal Reserve’s monetary stimulus and the possibility of the fiscal cliff occurring as their rationale. About a third of respondents thought stocks are fairly valued, while acknowledging the potential for downside movement in stock prices. A few respondents cited the outcome of the election as impacting how they viewed valuations.

This week’s AAII Sentiment Survey results:

  • Bullish: 29.2%, up 0.6 percentage points
  • Neutral: 27.7%, up 0.9 percentage points
  • Bearish: 43.1%, down 1.5 percentage points

Historical averages:

  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30%

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