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Highest Bullish Sentiment Since April: Survey

Bullish sentiment edged up 0.9 percentage points to 38.3% in the latest AAII Sentiment Survey. This is the highest level of optimism that stock prices will rise over the next six months since April 14. Nevertheless, bullish sentiment remained below its historical average of 39% for the 11th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially flat over the next six months, jumped 4.7 percentage points to 31.5%. This is a four-week high. The historical average is 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, dropped 5.5 percentage points to 30.2%. This is the lowest level of pessimism since April 7. This drop puts bearish sentiment essentially even with its historical average of 30%.

Pessimism over the direction of stock prices has dropped for three consecutive weeks after setting a 2011 high of 47.7%. The stabilization and recent rebound in stock prices has helped to lower the level of worry. Even with this week's improvement, bearish sentiment has been at or above its historical average of 30% for 18 of the last 19 weeks. This is a sign that individual investors remain cautious, which is not surprising given the ongoing lack of resolution to the debt ceiling and the slower pace of economic growth.

This week's special question asked AAII members how much impact the debt problems in Greece were affecting their sentiment toward stocks. The responses were mixed. Many said the situation was either somewhat or significantly negatively affecting their sentiment. A nearly equal number said their attitudes either weren't affected or were only slightly affected. A few thought the worries were creating buying opportunities in stocks. Several noted that the lack of agreement on the U.S. debt ceiling concerned them more.

Here is a sampling of the responses:

  • "It makes me bearish on the fringes, but I am much more concerned with the games in Washington, D.C."
  • "My stock portfolio is steady, but the market is going like a yo-yo with every twist and turn in Greece."
  • "I'm more cautious because of the uncertainty in Europe and elsewhere."
  • "If Greece defaults, there will be a double-dip recession."
  • "The fear of the Greek situation has made stocks more of a bargain."
  • "Not at all. Of course, if the malady spreads, then I'll head for the basement."

This week's AAII Sentiment Survey results:

  • Bullish: 38.3%, up 0.9 percentage points
  • Neutral: 31.5%, up 4.7 percentage points
  • Bearish: 30.2%, down 5.5 percentage points

This week’s Sentiment Survey results:

  • Bullish: 37.5%, up 8.5 percentage points
  • Neutral: 26.8%, down 1.4 percentage points
  • Bearish: 35.7%, down 7.0 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: http://www.aaii.com/sentimentsurvey.

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Charles Rotblut, CFA is a vice president with the American Association of Individual Investors and editor of the AAII Journal.