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AAII: Pessimism Rise Back Above Average

By Charles Rotblut, CFA, AAII

Bearish sentiment is above its historical average for the first time in seven weeks, according to the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 0.5 percentage points to 41.8%. This is a seven-week low and the fourth consecutive weekly decline in optimism. Even with the drop, bullish sentiment is above its historical average of 39.0% for the seventh consecutive week and the 12th out of the last 13 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 3.3 percentage points to 25.7%. This is a four-week low. Neutral sentiment is also below its historical average of 30.5% for the 19th consecutive week and the 21st out of the past 23 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 3.8 percentage points to 32.5%. This is a seven-week high. The historical average is 30.5%.

The spread between bullish and bearish sentiment, the bull-bear spread, is above 0.0 for the 13th consecutive week. This is the longest streak of bullish sentiment staying above bearish sentiment since the 18-week span from December 8, 2011 through April 5, 2012.

We are continuing to see a decline in the level of optimism. This is due to a combination of factors including concerns that the market may have gotten ahead of itself on a short-term basis, the increasing possibility of sequestration occurring and a reversion to the mean. Many AAII members are still optimistic, however, thanks to a combination of the ongoing rise in stock prices, continued economic growth and better-than-forecast fourth-quarter earnings.

This week’s special question asked AAII members for their opinion of fourth-quarter earnings. Slightly less than half of respondents described corporate profits as either being good or better than expected. Slightly less than a quarter of respondents described earnings or forward-looking guidance as disappointing.

Here is a sampling of the responses:

·         “Earnings seem very positive; the corporations are flush with cash.”

·         “Given the state of the economy, most [earnings reports] have been surprisingly good.”

·         “I thought fourth-quarter earnings came in a little better than I thought they would.”

·         “Mediocre. While most companies beat the street’s estimates, those estimates were lowered and reflect a slowing economy.”

This week’s AAII Sentiment Survey results:

·         Bullish: 41.8%, down 0.5 percentage points

·         Neutral: 25.7%, down 3.3 percentage points

·         Bearish: 32.5%, up 3.8 percentage points

Historical averages:

·         Bullish: 39.0%

·         Neutral: 30.5%

·         Bearish: 30.5%

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: https://www.aaii.com/sentimentsurvey.