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Bullish sentiment rebounded 7.3 percentage points to 37.1% in the latest AAII Sentiment Survey. Despite the improvement, the percentage of individual investors who expect stocks to rise over the next six months stayed below the historical average of 39% for the second consecutive week.

Neutral sentiment, expectations that stock prices will be essentially unchanged, rose 2.8 percentage points to 22.1%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, pulled back to 40.8%. Even after accounting for the 10 percentage point drop, bearish sentiment is at its fourth highest level of 2010. The historical average is 30%.

The decline in pessimism is not surprising. Throughout the history of the AAII Sentiment Survey, we rarely see bearish sentiment exceed 50% for two consecutive weeks. The exceptions are the recessions of 1990-91 and 2007-2009 recessions.

This week's special question asked AAII members what was currently having the biggest influence on their market sentiment. The mostly commonly cited factor was the European sovereign debt crisis. Many respondents also expressed concerns about the size of the U.S. federal deficit and the potential for slowing economic growth.

However, several members had a contrarian stance. They opined that the U.S. economy is comparatively better than Europe, described the recent correction as normal and believe that there may be too much pessimism right now.

Here is a sample of the responses:

  • "The Greek debt crisis and its effect on the euro."
  • "Worrisome debt, both in the U.S. and abroad."
  • "Growth in Europe and the U.S. will be slow."
  • "Stocks are undervalued and the U.S. economy is better than most."

This week's AAII Sentiment Survey results:

  • Bullish: 37.1%, up 7.3 percentage points
  • Neutral: 22.1%, up 2.8 percentage points
  • Bearish: 40.8%, down 10 percentage points

Long-term averages:

  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30%

The survey and its results are available here.

Source: AAII Sentiment Survey: Bearish Sentiment Falls, But Still High