Bullish sentiment rebounded, but stayed below an unusually low level of 30% for the second consecutive week in the latest AAII Sentiment Survey.
Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 5.9 percentage points to 28.1%. Even with the improvement, this is the first time optimism has been below 30% for two consecutive weeks since May 31 and June 7, 2012 This is also the 17th consecutive week that bullish sentiment has been below its historical average of 39%.
Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, plunged 7.3 percentage points to 28.8%. This is only the second time in the past six weeks 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 1.3 percentage points to 43.1%. This is a four-week high for pessimism. It is also the 12th consecutive week and the 15th out of the last 16 weeks that bearish sentiment has been above its historical average of 30%.
AAII members continue to worry that further declines in stock prices could occur over the short term. Bullish sentiment is in the midst of its longest streak of below-average readings since a 29-week period between April 2, 1993, and October 15, 1993. Market volatility, slowing global economic growth, Washington politics and the European sovereign debt crisis are all responsible for the downbeat outlook.
This week's special question asked AAII members whether slowing global economic growth, the potential U.S. fiscal cliff or the European sovereign debt crisis pose the greatest risk for stock prices. Members were split between the three, though the fiscal cliff-the potential for significant budget cuts and the expiration of tax cuts-received just a few more votes than slowing growth or the European crisis. Several members said all three pose significant risks.
Here is a sampling of the responses:
- "The U.S. fiscal cliff because all solutions hamper growth. Doing nothing puts us on the brink of disaster."
- "The U.S. fiscal cliff. The world needs the U.S. economy to be decent and this could kill it."
- "The European sovereign debt crisis. The fall of the euro will lead to a global banking crisis."
- "Slowing economic growth is the greatest risk because it will exacerbate both of the other risks."
- "Each risk is hard to quantify and if a worse case scenario occurs, it could have a significant impact on stock prices."
This week's AAII Sentiment Survey:
- Bullish: 28.1%, up 5.9 percentage points
- Neutral: 28.8%, down 7.3 percentage points
- Bearish: 43.1%. up 1.3 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 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.