Investors Are Sitting on the Fence - AAII

Bullish sentiment slipped 0.8 percentage points to 36.0% in the latest AAII Sentiment Survey. Optimism that stock prices will rise over the next six months is at its lowest level since September 2, 2010. The historical average is 39%.

Neutral sentiment, expectations that stock prices will remain essentially flat over the next six months, rose 1.7 percentage points to 31.7%. This is the first time neutral sentiment has been above its historical average of 31% since August 5, 2010.

Bearish sentiment, expectations that stock prices will fall over the six next months, declined 0.8 percentage points to 32.3%. This is the third consecutive week that pessimism has been above its historical average of 30%.

In a word, individual investors remain split over the short-term direction of stock prices. Though slightly more AAII members are optimistic than pessimistic, bullish sentiment remains below its historical average. This is occurring as the S&P 500 has stayed within an approximate 3% trading range since late February. The numbers reflect both recognition of stronger corporate earnings and unease about the threat of higher inflation and interest rates.

This week's special question asked AAII members what type of stocks they are looking at: value, growth or dividend-paying. Respondents overwhelmingly expressed their preference for dividend-paying stocks.

Here is a sampling of the responses:

• "Dividend-paying. They provide a return even if the market does not go up. They also seem to be a much better value than most bonds and CDs at this time."
• "With interest rates certain to rise over time and bond prices coming down, dividend-paying stocks promise better income return as well as the potential to increase in value."
• "While I am looking for growth at a reasonable price (GARP), as a retiree, I insist upon receiving (preferably growing) dividends."
• "Value and dividend paying stocks. The market is fairly valued."

This week's sentiment survey results:

• Bullish: 36.0%; down 0.8 percentage points
• Neutral: 31.7%; up 1.7 percentage points
• Bearish: 32.3%; down 0.8 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 here.