Neutral sentiment rose to its highest level since 2005 in the latest AAII Sentiment Survey, as both bullish and bearish sentiment fell.
Bullish sentiment, expectations that stock prices will rise over the next six months, dropped 6.5 percentage points to 33.7%. This is a four-week low. It is also the fifth time in the past six weeks that bullish sentiment has been below its historical average of 39%.
Neutral sentiment, expectations that stock prices will remain essentially unchanged over the next six months, jumped 11.9 percentage points to 38.0%. This is the highest neutral sentiment has been since April 14, 2005. It is also just the second time in the past 22 weeks that neutral sentiment has been above its historical average of 31%.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 5.4 percentage points to 28.2%. This is the first time in six weeks that bearish sentiment has been below its historical average of 30%.
Though this week's neutral sentiment reading is unusually high by recent standards, it remains within its long-term historical range. Neutral sentiment exceeded 40% at least once every year between 1989 and 2005. It has only been over the past six years that the percentage of individual investors expecting a flat market has stayed at lower levels.
Many individual investors remain cautious, and/or frustrated, due to ongoing market volatility and headline risk. European sovereign debt problems, Washington politics and slow economic growth are all weighing on sentiment.
This week's special question asked AAII members how they thought the S&P 500 will perform in 2012. Respondents expecting an up year outnumbered those expecting a down year by a margin of three to one. Expectations were modest, however, with more of than half of those predicting gains, saying the S&P 500 will rise by 10% or less. (Many projected a full-year increase of 5% to 10%.) A notable number of AAII members predicted a rise between 12% and 15% or a drop of 5%. A continuation of volatility was a common theme, even among those who were looking for the stocks to ultimately rise over the course of 2012.
This week's AAII Sentiment Survey results:
- Bullish: 33.7%; down 6.5 percentage points
- Neutral: 38.0%; up 11.9 percentage points
- Bearish: 28.2%; down 5.4 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 here.