Both bullish and bearish sentiment showed small increases in the latest AAII Sentiment Survey.
Bullish sentiment, expectations that stock prices will rise over the next six months, rose 1.0 percentage points to 43.7%. This is the ninth consecutive week and the 10th out of the last 11 weeks that bullish sentiment has been above its historical average of 39%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 1.9 percentage points to 28.8%. This is the third 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 0.9 percentage points to 27.5%. This is the third time in four weeks that pessimism has been above 25%. Nonetheless, bearish sentiment remains below its historical average of 30% for the eighth consecutive week and the ninth out of the last 10 weeks.
Though bearish sentiment is at now at an eight-week high, individual investors in aggregate expect stock prices to move higher over the short-term. Signs of an improving U.S. economy are overshadowing worries about contagion from the European sovereign debt problems.
This week's special question asked AAII members for their thoughts about the low levels of volatility the market has been experiencing and how it is impacting their sentiment toward stocks. Responses varied. Some respondents viewed the low volatility as a sign that stock prices will continue rising, while others worried that it is a warning sign of forthcoming pullback. Some respondents said it is indicative of many investors staying on the sidelines.
Here is a sampling of the responses:
- "Low volatility tends to reduce risk and fear, which encourages more money to come into the markets."
- "Low levels of volatility are frequently a characteristic of market tops, as complacency overwhelms greed."
- "It seems that stock prices have tuned out the news headlines lately, especially those having to do with Europe. It's a much tamer market, and I like it."
- "Volumes traded are more modest, which may be a reason for the lower volatility."
- "Low volatility is okay with me. I depend on dividends, not capital gains."
This week's AAII Sentiment Survey Results:
- Bullish: 43.7%, up 1.0 percentage points
- Neutral: 28.8%, down 1.9 percentage points
- Bearish: 27.5%, up 0.9 percentage points
- 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.