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AAII Sentiment Survey: Pessimism Falls to a Nine-Week Low

Bearish sentiment fell to a nine-week low in the latest AAII Sentiment Survey, while both bullish and neutral sentiment rose.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 4.0 percentage points to 32.6%. Even with the increase, optimism remains below its historical average of 39% for the 14th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, spiked 7.1 percentage points to 34.0%. This is a nine-week high for neutral sentiment. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, plunged 11.0 percentage points to 33.3%. This is the lowest level of pessimism since May 3, 2012. Even with the drop, bearish sentiment is above average for the ninth consecutive week and the 12th week out of the last 13 weeks.

The recent bounce to a two-month high in stock prices lessened the glum our survey has been indicating, but not so much that individual investors can be described as being sanguine. Worries about the pace of U.S. economic growth and Europe’s sovereign problems continue to weigh on sentiment.

This week’s special question asked AAII members if the Supreme Court’s decision to uphold the health care law impacted their sentiment toward stocks. The results were mixed, with the largest number of respondents saying the ruling did not alter their sentiment. The second-largest number said it made them more bearish, while the third-largest group said the ruling made them more bullish.

Here is a sampling of the responses:

“Not much impact. We’ll have to wait and see what happens. It does, however, change the way I see the elections.”
“The Supreme Court’s decision brings some closure to the matter. I believe it will have mixed effects.”
“It has not impacted my sentiment. I am more concerned about the fiscal cliff looming ahead.”
“Negatively. This is a higher tax on investment income and moves us further from solving economic problems.”
“I see the ruling as a strong positive for the markets, though I think it will take some time for the impact to be felt.”

This week’s AAII Sentiment Survey results:

Bullish: 32.6%, up 4.0 percentage points
Neutral: 34.0%, up 7.1 percentage points
Bearish: 33.3%, down 11.0 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?a=blog