AAII Sentiment Survey: Pessimism Falls to Lowest Level since August

Posted on December 13, 2012 | AAII Survey

Bearish sentiment fell to its lowest level since last August, as bullish sentiment increased for the fourth consecutive week, according to the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, increased 1.0 percentage points to 43.2%. This is the highest level of optimism registered by our survey since March 15, 2012. It is also the third consecutive week that bullish sentiment has been above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 3.5 percentage points to 26.7%. This is a seven-week high. Even with the increase, neutral sentiment is below its historical average of 30.5% for the 11th time in 13 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 4.5 percentage points to 30.1%. This is lowest level of pessimism registered by our survey since August 23, 2012. It is also just the fifth time in the past 36 weeks that bearish sentiment is below its historical average of 30.5%.

The market’s rebound off of its mid-November lows is causing individual investors to be more optimistic about the short-term direction of stock prices. Also playing a role are further signs of economic growth, such as the November jobs report, and seasonality. It should also be pointed out that this week’s readings are fairly close to the historical average, implying that individual investors are neither unusually bullish nor bearish.

This week’s special question asked AAII members what influence the ongoing lack of a resolution to the fiscal cliff is having on their short-term outlook for stock prices. About one-third of respondents said the stalemate was having a negative impact, while another equally sized group said it wasn’t having any impact. Other respondents said the lack of resolution is causing them to be more cautious or that they expected stocks to stay range-bound until a resolution is reached. A few AAII members said they would view any fiscal cliff-related drop in stock prices as a buying opportunity. Several members expressed frustration with the politicians in Washington.

Here is a sampling of the responses:

  • “This [the fiscal cliff negotiations] just adds to the volatility. Long-term investors should just ignore the noise.”
  • “I’m a long-term investor. The so-called fiscal cliff has no impact on my investment decisions.”
  • “Very bearish! It’s unbelievable our elected officials cannot come to some closure on this.”
  • “I will hold off on buying; I believe the market will go down without a satisfactory solution.”
  • “It makes me think the short-term (next month or so) will be volatile for stocks.”
  • “I believe stocks will be down in the short term, but the fiscal cliff will be resolved and the market will go up.”

This week’s AAII Sentiment Survey Results:

  • Bullish: 43.2%, up 1.0 percentage points
  • Neutral: 26.7%, up 3.5 percentage points
  • Bearish: 30.1%, down 4.5 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