Optimism rose for the second consecutive week, while pessimism declined in the latest AAII Sentiment Survey.
Bullish sentiment, expectations that stock prices will rise over the next six months, rose 4.5 percentage points to 37.5. Even with the increase, optimism is below its historical average of 39.0% for the fourth consecutive week and the 14th out of the last 17 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged, increased by a modest 0.2 percentage points to 32.6%. This is the fourth consecutive week and the 10th in the past 13 weeks that neutral sentiment is above its historical average of 30.5%
Bearish sentiment, expectations that stock prices will fall over the next six months, dropped by 4.6 percentage points 30.0%. The historical average is 30.5%.
The changes in bullish and bearish sentiment over the most recent three weeks are nearly mirror images of each other. Bullish sentiment is up by a cumulative 8.0 percentage points, while bearish sentiment is down by a cumulative 8.9 percentage points. The swap reflects the ongoing volatility we have seen in the survey results since the start of March.
Since the survey period runs from Thursday through Wednesday, any reaction to yesterday's Federal Open Market Committee's meeting statement and Federal Reserve Chairman Ben Bernanke's press conference would have had only a small impact on the results. Rather, this week's results reflect the tug of war between concerns about prevailing valuations, the slow pace of economic growth, interest rate uncertainty, and a lack of progress on key issues by Washington politicians and optimism about the length of the current rally and signs of continued economic growth.
This week's special question asked AAII members which sectors and industries they like right now. Energy was the most popular, named by 31% of respondents. Technology came in second, picked by 25% of respondents. Health care and industrials came in third and fourth, listed by 19% and 10% of respondents, respectively. When we asked the same question in early April, respondents named energy, health care and technology as their favorite industries and sectors.
This week's AAII Sentiment Survey results:
- Bullish: 37.5%, up 4.5 percentage points
- Neutral: 32.6%, up 0.2 percentage points
- Bearish: 30.0%, down 4.6 percentage points
- Bullish: 39.0%
- Neutral: 30.5%
- Bearish: 30.5%
A new historical analysis of the AAII Sentiment Survey found that a correlation between low levels of optimism and good stock market performance over the following six- and 12-month periods exists. The analysis (Is the AAII Sentiment Survey a Contrarian Indicator?) is published in the June 2013 AAII Journal.
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.