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Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 6.5 percentage points to 49.0% in the latest AAII Sentiment Survey. This is the fifth consecutive week that optimism among individual investors has exceeded 40%. The historical average is 39%.

Neutral sentiment, expectations that stock prices will remain essentially unchanged over the next six months, fell 2.6 percentage points to 23.2%. This is the lowest neutral sentiment has been since July 22, 2010. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.9 percentage points to 27.7%. Bearish sentiment has been below its historical average of 30% during the three out of the last four weeks.

Individual investors continue to react positively to this fall’s global rise in stock prices, as can be seen in the survey results. The 21.3-point spread between bullish and bearish sentiment suggests that optimism remains below levels that would be considered excessive, however. (The bull-bear spread has topped 40 points nearly 70 times since 1987.) This suggests that though many individual investors are hopeful, concerns about the economy, interest rates and the federal deficit have not faded into the background.

This week's special question asked AAII members whether third-quarter earnings or the upcoming elections will have a bigger impact on their sentiment. Third-quarter earnings were cited by the majority of respondents, but a sizeable number of respondents said the outcome of the elections would have a bigger impact on their outlook for stocks.

Here is a sampling of the responses:

  • "Third-quarter earnings matter more. I think the markets have already discounted a continuation of gridlock with Republicans making gains."
  • "Third-quarter earnings will have a bigger impact. Election results are already baked into the market. Unless there is an upset by the Democrats, the election results should have minimal impact."
  • "The upcoming elections will have a bigger impact because they will drive the national mood, hiring and spending."
  • "My investing decisions will be driven by the action in the market, showing how traders interpret the news."

This week's sentiment survey results:

  • Bullish: 49.0%, +6.5 percentage points
  • Neutral: 23.2%, -2.6 percentage points
  • Bearish: 27.7%, -3.9 percentage points

Historical averages:

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

The survey and its results are available online here.

Source: AAII Sentiment Survey: Bullish Sentiment Jumps to 49.0%