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Investor sentiment continued its pessimistic slide in the latest AAII survey of individual investors. Bullish sentiment decreased 5.2 percentage points to 25.3%. The percentage of investors expecting stock prices to rise over the next six months is 13.7 percentage points below the long-term historical average of 39%. Bullish sentiment has been below its historical average for nine consecutive weeks and has been below the historical average 20 times over the last 23 weeks.

Neutral sentiment, expectations that stock prices will be essentially unchanged over the next six months, fell 1.5 percentage points to 26.7%. This is the tenth consecutive week that neutral sentiment has been below its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 6.7 percentage points to 48.0%. This was the sixth time in the past eight weeks that bearish sentiment has been above 40%. It is also the 28th time in the last 31 weeks that bearish sentiment has been above its historical average of 30%.

The numbers show growing pessimism among individual investors. Both bearish and bullish sentiment readings are more than one standard deviation away from their long-term averages. Bearish sentiment is more than one standard deviation above its average of 30%, while bullish sentiment is more than one standard deviation below its 39% long-term average.

This week’s special question asked AAII members if the Greek sovereign debt situation was influencing their investing decisions. Specifically, we asked if members had taken any investment actions because of the Greek debt situation, whether they were waiting to see if the country defaults or looking for bargains in European stocks. The responses varied widely, with some respondents expecting a successful resolution to the Greek debt crisis and others anticipating a Greek default. Some investors are using the pessimistic environment to snap up bargains, while others are holding more cash and bonds than usual until there is a true resolution to the Greek debt crisis. Most respondents seem to be monitoring the situation without letting it impact their investment decisions.

Here is a sampling of the responses to this week's special question.

  • “I am monitoring the Greek situation, but it is not affecting my decisions at this point.”
  • “It’s just the tip of the iceberg in Europe. The situation in Europe could blow up and make the market collapse of 2008 look small by comparison.”
  • “Europe has deep-seated structural problems well beyond Greece. I am not buying European stocks.”
  • “Who wants to catch the falling European knife?”
  • “I am looking for more bargains in U.S. stocks that are just down because of the European uncertainty.”
  • “Looking for bargains in European stocks. Greece is going to default sooner or later. But not all European companies should be painted with the same brush.”
  • “Greece? Wasn’t that a Movie Title?”

This week's AAII Sentiment Survey results:

  • Bullish: 25.3%, down 5.2 percentage points
  • Neutral: 26.7%, down 1.5 percentage points
  • Bearish: 48.0%, up 6.7 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.

Source: AAII Sentiment Survey: Sentiment Deteriorates, Bearish Level Rises to 48%