AAII Sentiment Survey: Optimism Declines, But Stays Above Average


Optimism dropped for the second consecutive week, though still stayed above its historical average, in the latest AAII Sentiment Survey. Pessimism, meanwhile, rose to a five-week high.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.3 percentage points to 42.8%. This is a five-week low. Even with the decline, bullish sentiment is above its historical average of 39% for the fifth consecutive week and the 10th out of the last 11 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, is unchanged at 27.7%. This is the 17th consecutive week and the 19th time in 21 weeks that neutral sentiment is below its historical average of 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 5.3 percentage points to 29.6%. The increase puts pessimism at a five-week high. Nonetheless, bearish sentiment is below its historical average of 30.5% for the eighth time in nine weeks.

Since setting a two-year high of 52.3% two weeks ago, bullish sentiment has fallen by a cumulative 9.5 percentage points. The decline reflects both a concern that stock prices may have risen too much since last November and a reversion to the mean in the survey’s results. Many AAII members are still optimistic, however, thanks to a combination of the ongoing rise in stock prices, discussions within Congress to avert sequestration, continued economic growth and better-than-forecast fourth-quarter earnings. Seasonality is also contributing to individual investors’ optimistic moods.

This week’s special question asked AAII members how they viewed the current valuation of stock prices. An equal number of respondents said that stocks are either fairly valued or overvalued. Only a small group of respondents (less than 10%) think stocks are undervalued. Some members described the market as being overbought, while others thought valuations are slightly high, but not necessarily overvalued.

Here is a sampling of the responses:

  • “Stocks are not cheap, and they are not expensive.”
  • “Stocks are fairly valued, but we are due for a pullback of at least 5%.”
  • “Overvalued and over-hyped. Stock values are inflated relative to earnings.”
  • “Overvalued in many cases.”
  • “Fairly valued, but I’m uncomfortable with the positive attitude toward stocks at this time.”
This week’s AAII Sentiment Survey results:
  • Bullish: 42.8%, down 5.3 percentage points
  • Neutral: 27.7%, unchanged
  • Bearish: 29.6%, up 5.3 percentage points
Historical averages:
  • Bullish: 39.0%
  • Neutral: 30.6%
  • Bearish: 30.6%
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 

Charles Rotblut. CFA is a Vice President with the American Association of Individual Investors and editor of the AAII Journal.