AAII Sentiment Survey: Bearish Sentiment Stays Above 40%

|
Includes: DIA, QQQ, SPY
by: AAII

Bullish sentiment, expectations that stocks will rise over the next six months, fell 2.6 percentage points to 34.5% in the latest AAII Sentiment Survey. This is the fourth time in five weeks that bullish sentiment has been below its historical average of 39%.

Neutral sentiment, expectations that stocks will be flat over the next six months, was essentially unchanged at 22.4%. The historical average is 31%.

Bearish sentiment, expectations that stocks will fall over the next six months, rose 2.3 percentage points to 43.1%. The historical average is 30%.

The ongoing volatility continues to rattle the nerves of individual investors and is clearly causing them to reassess their outlook for stocks. This can be seen in the proportion of respondents who described themselves as bearish. Pessimism remained above 40% for the third consecutive week. Bearish sentiment last stayed at these levels during an eight-week period between August and October 2009, when pessimism reached or exceeded 40% six times.

This week's special question asked AAII members whether they thought the U.S. economy will grow at a faster or slower pace in the second half of 2010 than it did during the first half. Two-thirds of the respondents predicted the economy will grow at a slower pace. However, several members did forecast stronger growth.

Here is a sample of the responses:

  • "I think the economy will grow at a slower pace in the second half, but it will grow. Employment is the key in my view."
  • "Slower because of the fading stimulus package, Chinese tightening and euro debt."
  • "The slow jobs growth is going to cause consumers and businesses to hesitate and not spend."
  • "A little faster unless the European debt problem explodes."

This week's AAII Sentiment Survey results:

  • Bullish 34.5%, down 2.6 percentage points
  • Neutral 22.4%, up 0.3 percentage points
  • Bearish 43.1%, up 2.3 percentage points

Long-term averages:

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

The survey and its results are available online here.