Pessimism Reaches 8-Week High in AAII Sentiment Survey

Posted on September 20, 2012 | AAII Survey

Bullish sentiment rose to a four-week high, while bearish sentiment rebounded to a eight-week high in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.0 percentage points to 37.5%. This puts optimism at a four-week high. Nonetheless, bullish sentiment is below its historical average of 39% for the fourth consecutive week and the 24th out of the past 25.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.8 percentage points to 28.7%. This is a 12-week low for neutral sentiment. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 0.8 percentage points to 33.8%. This is the highest level of pessimism registered by our survey since August 2, 2012. Bearish sentiment is also above its historical average of 30% for the 20th time in the past 24 weeks.

Individual investor optimism remains improved relative to what was registered throughout spring and much of the summer. While pessimism is persistently staying above average, it is below the May through July readings. Splitting the moods of AAII members are higher stock prices, improved economic data, slowing global economic growth, Washington politics and the European sovereign debt crisis.

This week’s special question asked AAII members how last week’s announcement of more monetary stimulus by the Federal Open Market Committee impacted their sentiment toward stocks. There was not a consensus among our members. More than a third of respondents said the move will help stocks. Another 10% thought the move would provide a temporary lift to stocks. Conversely, nearly 30% said the announcement didn’t change their sentiment. Some members described the move as being bad for the U.S., while others viewed gold as now being more attractive.

Here is a sampling of the responses:

  • “I will be moving more assets out of cash and into stocks.”
  • “The announcement reaffirmed that fixed income will not satisfy my retirement income needs and an overweight commitment to equities must be maintained.”
  • “Short term, I feel somewhat more positive about stocks, but I am equally wary of the downside risks of stimulus.”
  • “It doesn’t impact my sentiment toward stocks at all. Although, I don’t believe more monetary stimulus will accomplish much of anything.”
  • “It hasn’t affected my sentiment because I’m awaiting for the November election results.”
  • “The Fed’s policy is a disaster. We will get bitten by it sooner or later.”

This week’s AAII Sentiment Survey results:

  • Bullish: 37.5%, up 1.0 percentage points
  • Neutral: 28.7%, down 1.8 percentage points
  • Bearish: 33.8%, up 0.8 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

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