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By Charles Rotblut, CFA, AAII

Neutral sentiment reached a six-month high in the latest AAII Sentiment survey. Bullish sentiment rose, while bearish sentiment fell.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded 7.8 percentage points to 35.4%. This is the highest level of optimism in a month. Nonetheless, bullish sentiment remained below its historical average of 39% for the fifth consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.2 percentage points to 36.1%. This is the highest neutral sentiment has been since December 22, 2011. It is also the fifth time in six 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 8.9 percentage points to 28.5%. This is a four-week low for pessimism. It is also the first time in four weeks that bearish sentiment has been below its historical average of 30%.

A recent rebound in stock prices following the recent dip and mixed economic data are combining to keep neutral sentiment at above-average levels. Better-than-expected first-quarter profits, signs of continued economic growth and a return of some upside volatility in stock prices are helping optimism. Conversely, volatile market conditions, concerns about the pace of domestic economic growth, high gasoline prices, and the ongoing European sovereign debt crisis are keeping many individual investors pessimistic.

This week’s special question asked AAII members if they thought prospects for the U.S. economy have improved over the past few months. The responses were evenly split. Among those who thought conditions have not improved, Europe’s sovereign debt crisis was frequently mentioned as an ongoing threat. Others said economic conditions, including inflation, were worse than the data suggests. Among those who thought the economy is getting better, improvements in the economic data and the markets were cited. Respondents in both groups said they were keeping an eye on events in Congress and on the outcome of the upcoming presidential election.

Here is a sampling of the responses:

  • “We’re still in slow growth mode. Housing is still in the doldrums, and the slowdown in Europe doesn’t help.”
  • “I think the European economy will drag down the U.S. economy in the next three to six months, regardless of what the Fed does.”
  • “I fail to discern any fundamental changes one way or the other. If anything, the potential for adverse occurrences has marginally increased.”
  • “Prospects are much improved. The economic data is showing a slow, but steady recovery.”
  • “The core economy is improving as people get back to work and demand improves.”
  • “The mall is full of people.”

This week’s AAII Sentiment Survey results:

  • Bullish: 35.4%, up 7.8 percentage points
  • Neutral: 36.1%, up 1.2 percentage points
  • Bearish: 28.5%, down 8.9 percentage points

Historical averages:

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