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Optimism fell to a 10-week low as pessimism rose to its highest level since late July in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 3.3 percentage points to 30.6%. This is the lowest level of optimism since August 2, 2012. It is also the seventh consecutive week and the 27th out of 28 weeks that bullish sentiment is below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 2.3 percentage points to 30.6%. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 5.6 percentage points to 38.8%. This puts pessimism at an 11-week high. Bearish sentiment is above its historical average of 30% for the seventh consecutive week and the 23rd out of the last 27 weeks.

Bullish sentiment and neutral sentiment have only been at equal levels 28 times over the history of the survey. The last time both bullish and neutral sentiment were equal was November 5, 2009.

Four days of declines have dampened optimism about the short-term direction of stock prices and increased concern among those worried about a potential forthcoming pullback. Many individual investors remain focused on slowing global economic growth, Washington politics and the European sovereign debt crisis. The potential outcome of the presidential election is also impacting some investors' sentiment. Those who are optimistic about the short-term outlook are encouraged by improved economic data and this year's rise in stock prices.

This week's special question asked AAII members for their perception of the housing market. Specifically, we asked whether or not the housing market is starting to recover. Most respondents said, yes, the housing market is starting to recover, but many added the caveat of a slow and prolonged recovery. There were also some individual investors who thought the housing market is merely bouncing along the bottom or still has the potential to worsen.

Here is a sampling of the responses:

  • "The housing market is starting to recover, but it will take several more years before people's confidence returns."
  • "Housing may be recovering, but there are still a lot of foreclosures coming to the market."
  • "I am seeing a swing upward, especially here in the San Francisco Bay area of California."
  • "I think it is starting to recover, but at lower prices."
  • "I believe prices will rise slowly and that low mortgage interest rates will help, but the market will be mostly stagnant because banks are unwilling to lend."
  • "I don't think so. Too much shadow inventory and strict regulation on credit. People may have enough income to qualify for a loan, but not the credit rating or down payment."

This week's AAII Sentiment Survey results:

  • Bullish: 30.6%, down 3.3 percentage points
  • Neutral: 30.6%, down 2.3 percentage points
  • Bearish: 38.8%, up 5.6 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

Source: AAII Sentiment Survey: Optimism Falls To A 10-Week Low