Bullish sentiment plunged 10.7 percentage points in the latest AAII Sentiment Survey. The proportion of individual investors who expect stock prices to rise over the next six months fell to 27.2%, an eight-week low. The historical average is 39%.
Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, dropped 7.8 percentage points to 23.0%. This is the lowest neutral sentiment has been since February 3, 2011. The historical average is 31%.
Bearish sentiment, expectations that stock prices will fall over the next six months, surged 18.4 percentage points to 49.9%. This is the highest level of pessimism since May 27, 2010 and the biggest weekly percentage point increase since July 20, 2006. It is also the 21st time in the 24 weeks that bearish sentiment has been above its historical average of 30%.
There was a large amount of headline risk throughout the survey period. Events contributing to the negative sentiment included the debt ceiling debate, weak economic data such as second-quarter GDP and the July ISM manufacturing survey, and a eight-day losing streak for the Dow Jones Industrial Average. Many individual investors already had concerns about the pace of economic growth, so it is not surprising to see their nerves rattled by the negative headlines.