AAII Sentiment Survey: Pessimism Spikes by 14.7 Percentage Points


Bearish sentiment rose by 14.7 percentage points to a four-month high as both bullish and neutral sentiment fell in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.5 percentage points to 29.0%. This puts optimism near the bottom of what has historically been the normal range of readings. It is also the third time in four weeks that bullish sentiment is below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, plunged 9.1 percentage points to 28.2%. This is the first time in 13 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, spiked by 14.7 percentage points to 42.9%. This is the largest weekly increase in pessimism since April 11, 2013. The historical average is 30.5%.

Pessimism is now at an unusually high level following the second large jump in bearish sentiment this year. On April 11, bearish sentiment surged by 26.3 points to 54.5%. After the April jump, pessimism pulled back over next four consecutive weeks.

Bearish sentiment has been rising recently, with this week’s increase marking the sixth consecutively weekly increase. Until this week, neutral sentiment had stayed in a relatively high range. Combined, these trends signaled a growing sense of cautiousness on the part of individual investors. The 2.5% decline in the S&P 500 over the past five days may have been the catalyst to move some AAII members from the neutral camp and into the bearish camp. Current market valuations, the possibility of the Federal Reserve tapering its bond purchases, a lack of progress on key issues by Congress and the president, and slow economic growth are all dampening investors’ moods.

This week’s special question asked AAII members how second-quarter earnings influenced their outlook for stock prices. Nearly four out of 10 respondents (39%) said their outlook was not altered by the quarterly results. About 17% said the quarterly reports caused them to become more bearish. The responses from other individual investors were mixed some respondents with saying they are now more bullish and others saying they are more concerned with the potential near-term tapering of bond purchases by the Federal Reserve. A few respondents said their investment outlook is not influenced by quarterly earnings.

Here is a sampling of the responses:

  • “No change in my outlook, but I was disappointed in second-quarter earnings.”
  • “Earnings were not very good, but I’m more concerned about rising interest rates.”
  • “Earnings and corporate outlooks point to steady, but slow growth in the economy over the intermediate term.”
  • “Positively. I was pleased with earnings of the companies I hold for the most part and was pleasantly surprised by the overall outlooks from most companies.”
  • “Very little change. There were few surprises.”

This week’s AAII Sentiment Survey

  • Bullish: 29.0%, down 5.5 percentage points
  • Neutral: 28.2%, down 9.1 percentage points
  • Bearish: 42.9%, up 14.7 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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