AAII Sentiment Survey: Pessimism is at its highest level since June


Pessimism rose to its highest level since last June as optimism fell for the fourth consecutive week in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.9 percentage points to 28.7%. This is the lowest level of optimism registered by the survey since July 26, 2012. It is also the eighth consecutive week and the 28th out of the last 29 weeks that bullish sentiment is below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 3.8 percentage points to 26.8%. This ties June 7, 2012, for the lowest reading of 2012. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped up 5.7 percentage points to 44.5%. This is the highest pessimism has been since June 7, 2012. It is also the eighth consecutive week and the 24th out of the last 28 weeks that bearish sentiment has been above its historical average of 30%.

The bull-bear spread, which measures the difference between bullish and bearish sentiment, is at -15.8. This is the most negative the spread has been since July 19, 2012.

Bearish sentiment is at unusually, but not extraordinarily, high levels. Though stocks pulled back last week, the market has rebounded this week. The economic data released over the survey period (Thursday morning through Wednesday night) has mostly matched or topped expectations.

There are a few factors at play. The first is that this year’s rally has been disliked, or at least not trusted, by many individual investors. The readings in our survey and the outflows from domestic equity mutual funds reported by the Investment Company Institute both suggest this. Some investors are worried about the potential outcome of the presidential election. There are also ongoing concerns about the pace of economic growth, Europe’s sovereign debt problems and the possibility of the fiscal cliff occurring.

It should be noted there are still individual investors who are encouraged by the year’s rally in stock prices and improvement in economic data.

This week’s special question asked AAII members if they think consumers will spend more or less on holiday shopping this year. (The National Retail Federation forecasts a 4.1% increase in sales.) By an approximate 2-to-1 ratio, respondents thought holiday sales will rise this year. The primary reason cited was better economic conditions and improved consumer confidence. Several responds also thought that many consumers are simply tired of austerity. Among those who thought spending would decline, a weak economic recovery was the most cited reason.

Here is a sampling of the responses:

  • “People want to spend more and buy things. They think they have been frugal enough.”
  • “More. The overall economy is improving, so spending will improve accordingly.”
  • “More people are employed than last year, so overall spending should increase.”
  • “Consumers will spend slightly less. Too many are unemployed or underemployed.”
  • “Less, many consumers are hurting.”
  • “I just walked through the mall and noticed in the window displays that hemlines are rising. That’s all the evidence I need to believe that the market and holiday sales are going up!”


The AAII Sentiment Survey has been conducted weekly since 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 July 1987 and asks AAII members whether they think stock prices will rise, remain essentially