Investor sentiment has taken a turn for the worse this week as the market continued to decline on more weak economic data. The Investor’s Intelligence Survey showed a drop in bullish sentiment to just 33.3% while the AAII Survey showed a decline to 20.7%. Both surveys have now decline to historically low levels. The one exception was the 2008 market when the fundamentals were deteriorating on a weekly basis and investors grew increasingly bearish. The II survey did not ultimately bottom until bullishness reached the low 20’s.
Charles Rotblut from the AAII elaborates on the decline in small investor sentiment:
“Bullish sentiment fell 9.4 percentage points to 20.7% in the latest AAII Sentiment Survey. This is the lowest that expectations for stock prices to rise over the next six months have been since March 5, 2009. The historical average is 39%.
Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, rose 2.4 percentage points to 29.8%. The historical average is 31%.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose 7.0 percentage points to 49.5%. This is a seven-week high for pessimism. The historical average is 30%.
As stated above, bullish sentiment is at its lowest level since March 5, 2009, the approximate bottom of the last bear market. Short-term market bottoms also occurred when bullish sentiment fell to 22.2% on November 5, 2009, and 20.9% on July 8, 2010. However, bearish sentiment was above 55% on all three of those dates, versus its current reading of 49.5%.”
Sources: AAII, II
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.