Pragmatic Capitalism

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AAII Weekly Sentiment: The Bears Return

By Charles Rotblut, CFA, AAII

Bearish sentiment rose to its highest level since July 26, 2012, in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.4 percentage points to 36.1%. This is the fifth consecutive week and the 25th out of the past 26 weeks that bullish sentiment is below its historical average of 39%.

Neutral sentiment, expectations that stock prices will remain essentially unchanged over the next six months, fell 1.3 percentage points to 27.4%. This is the third consecutive week that neutral sentiment is below its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.7 percentage points to 36.5%. Pessimism is now at a nine-week high. Bearish sentiment is above its historical average of 30% for the fifth consecutive week and for the 21st time in the past 25 weeks.

Even though bullish sentiment remains below average, optimism among individual investors remains improved relative to what was registered throughout spring and much of the summer. While bearish sentiment is now at a nine-week high, it is below the May through July readings. Splitting the moods of AAII members are higher stock prices, improved economic data, slowing global economic growth, Washington politics and the European sovereign debt crisis.

This week’s special question asked AAII members how the likely forthcoming adjournment by Congress without a deal to avert the fiscal cliff influences their six-month outlook toward stocks. Respondents were nearly evenly split between those who said their sentiment is not affected and those who said it makes them more cautious or more bearish. Several members said their sentiment is not affected because they thought the politicians will reach an agreement to avert the fiscal cliff. Many members expressed frustration, cited the current uncertainty or are awaiting the outcome of the November elections.

Here is a sampling of the responses:

“It doesn’t influence my sentiment, but it sure makes me irate at our government.”
“I think Congress will kick the can down the road, so the fiscal cliff is unlikely.”
“The lack of a solution will lead to significant uncertainty and apprehension, causing a pullback in the stock market.”
“Stocks will drop if nothing is done to resolve the fiscal cliff.”
“I will forgo any major stock purchases until the fiscal cliff issue plays itself out.”
“My outlook remains the same—long-term investing regardless of the political idiocy of the moment.”

This week’s sentiment survey results:

Bullish: 36.1%, down 1.4 percentage points
Neutral: 27.4%, down 1.3 percentage points
Bearish: 36.5%, up 2.7 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:

Charles Rotblut

Charles Rotblut, CFA, is a vice president of the American Association of Individual Investors. He is the editor of the AAII Journal. He authors the weekly AAII Investor Update e-newsletter and his commentary is published on both Seeking Alpha and

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