AAII Sentiment Survey: Pessimism Surges to Highest Level since August 2011


Bearish sentiment spiked to its highest level since August 2011, as bullish sentiment fell in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 9.7 percentage points to 28.8%. The drop puts optimism at a four-week low. Bullish sentiment is below its historical average of 39% for the 12th consecutive week and the 32nd time in 33 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, edged up 0.8 percentage points to 22.4%. Even with the increase, neutral sentiment stayed below its historical average of 31% for the ninth time in 10 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, surged 8.9 percentage points higher to 48.8%. This is the highest pessimism has been since August 4, 2011. It is also the 12th consecutive week and the 28th out of the last 32 weeks that bearish sentiment has been above its historical average of 30%.

Bearish sentiment is at unusually high levels, but not so high that it would be considered extraordinarily high. (In statistical terms, pessimism is less than two standard deviations away from its historical average.) The sharp increase comes as the market has pulled back, some large-cap stocks have declined notably over the past several weeks and uncertainty about the fiscal cliff looms. Many individual investors also continue to fret about the slow pace of economic growth and Europe’s sovereign debt crisis.

This week’s special question asked AAII members whether they planned to alter their portfolio or keep it unchanged given last week’s election results. About two-thirds of respondents said they haven’t made any or weren’t planning on making any changes. Approximately 20% said they are either reducing their stock holdings or favoring less volatile stocks. A few said they were waiting to see what Congress does, or doesn’t do, to resolve the upcoming fiscal cliff.

Here is a sampling of the responses:

  • “I will keep to my present strategy of emphasizing solid dividend stocks and a couple of well-performing growth stocks.”
  • “I’m happy with my asset allocation and don’t need to change it.”
  • “No changes other than taking some capital gains prior to year’s end.”
  • “I plan to continue to tweak my portfolio as opportunities arise, but do not expect to make major sector changes.”
  • “I’m reducing risk and holding more gold.”
  • “My plan is to neither buy nor sell until after Congress acts on the fiscal matters.”

This week’s AAII Sentiment Survey results:

  • Bullish: 28.8%, down 9.7 percentage points
  • Neutral: 22.4%, up 0.8 percentage points
  • Bearish: 48.8%, up 8.9 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