AAII Sentiment Survey: Bears Outnumber Bulls for First Time since August​

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Bearish sentiment rose back above its historical average, nearly hitting a four-month high in the latest AAII Sentiment Survey. This increase in pessimism, combined with a drop in optimism, has caused bears to outnumber bulls for the first time since August 22, 2013. The increase in pessimism and the declines in both bullish and neutral sentiment are an indication of a more cautious outlook for the six-month direction for stock prices.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 5.9 percentage points to 32.2 percent. This is the lowest level of optimism registered by our survey since August 22, 2013. It is also the third consecutive week that bullish sentiment is below its historical average of 39.0 percent.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, fell 3.1 percentage points to 35.1 percent. This is the fourth consecutive week with a neutral sentiment reading above the historical average of 30.5 percent.

Bearish sentiment, expectations that stock prices will fall over the next six months, surged upwards by 9.0 percentage points to 32.8 percent. This is the highest level of pessimism registered by our survey since October 10, 2013. This week’s reading also ends a streak of 15 consecutive weeks with bearish sentiment below its historical average of 30.5 percent. Thus, January’s volatility continues to cast clouds over individual investors’ short-term outlook for stock prices.

Since registering 55.1 percent on December 26, 2013, bullish sentiment has fallen by a cumulative 22.9 percentage points. In addition to the modest decline in the S&P 500, concerns about the market having reached a short-term top, valuations, the pace of economic growth, and Washington politics are dampening investors’ moods. Offsetting these worries is earnings growth, economic growth, the record highs established by the large-cap indexes earlier this month, and the Federal Reserve’s tapering of its bond purchases.

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