Bullish sentiment posted its largest weekly gain in nearly three years.

Expectations that stock prices will rise over the next six months, surged 14.4% to 45.4%. This spike in optimism was the largest since July 15, 2010.

Bearish sentiment — expectations that stock prices will fall over the next six months — dropped 6.5 points to 32.0%. Pessimism remains above historical average of 30.5%.

Note the sentiment swings: Just 2 weeks ago, 28.4% of AAII members described themselves as optimistic — the lowest level since November 2010.

Sampling of AAII sentiment survey responses after the jump.


This week’s special question asked AAII members how the new record highs set by the Dow Jones industrial average has influenced their opinion about the attractiveness of stocks. Responses were mixed. The largest group of respondents (approximately 30%) said the new record highs had no impact. Approximately 18% of respondents expect stock prices to pull back in the short term, though some AAII members think the pullback will be followed by a rebound to even higher prices. Roughly 17% said they are now more cautious or bearish, while 11% said they are more bullish. A couple of respondents said it is harder to find bargains in the current environment.

Here is a sampling of the responses:

“The new highs concern me a little, as we may be getting ahead of ourselves.”
“I am reluctant to put new money (except for my regular contributions) into the market right now.”
“As stocks go up in price, they are more risky in my view, but I think stocks still have more upside than downside at current levels.”
“I have to search harder to find stocks of value.”
“The record high has not influenced my opinion.”

This week’s AAII Sentiment Survey:

Bullish: 45.4%, up 14.4 percentage points
Neutral: 22.5%, down 7.9 percentage points
Bearish: 32.0%, down 6.5 percentage points

Historical averages:

Bullish: 39.0%
Neutral: 30.5%
Bearish: 30.5%

The AAII Sentiment Survey
Charles Rotblut, CFA, Vice President and AAII Journal Editor
American Association of Individual Investors

Category: Psychology

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8 Responses to “Sentiment Getting Frothy”

  1. [...] Bullish sentiment is kicking in.  (Bespoke, Big Picture) [...]

  2. VennData says:

    Listen to Rick Santelli and Maria Bartiromo for anything more than ten seconds, read the WSJ, watch Fox, and you will not think sentiment is frothy; you’d think we’re Argentina, back in the Pre-Cambrian era.

  3. rd says:

    Its all about earnings now.

    S&P 500 earnings are essentially unchanged for a year and half now. But the multiplier keeps climbing. Both nominal and inflation adjusted earnings are close to where they were in late 2007. Would Uncle Ben be happy with the wealth effect he would get from another blow-off top like 1998-2000?

    A resumption of the earnings gowth from 2009 to 2011 would be a strong justification for continuation the bull market. Continued flat or a switch to declining earnings would be very bad news as investors would realize that they are simply getting dividend payouts equal to the 10-year Treasury without the promise of growth with inflation, or the guarantee of getting your principal back in 10 years. There has been good economic news with an increased reliance on the private sector for new jobs but the very slow growth of disposable income is still problematic. However, the early 2000s proved that you can still have a massive stock market crash even though the economy is not suffering too much overall.

    There are also more and more articles showing up trying to disprove Shiller’s CAPE as a valuable valuation tool since it is clearly in high territory now. However, as far as I can tell the basic rules of investing and business economics are still largely in play that were around a century ago even though the world itself has changed on the technology side. So another sign of a faltering bull market is when relatively reliable valuation tools get slammed in order to justify continued multiplier expansion. My basic portfolio rule is that I need to have an asset allocation in place when CAPE goes over 20 where I can tolerate a 50% decline in the S&P 500 over a two year period without having to make large adjustments other than normal rebalancing.

  4. joinvestor says:

    Good point. Definitely agree with the term frothy. Not just in the swings back and forth as you noted and that both bullish and bearish opinions are higher than the norm, but that neutral sentiment is lower than the historical average. Basically no one is sure about the short run but almost everyone has an opinion.

    My two cents is in the longer run the data seem to point to a continuing upward trend. However in the short term I’m again sticking by my comment a bit of days ago that there’s a minor to intermediate dip coming. It’s not here yet, but almost…maybe yet another week or two. And this sentiment analysis is just more confirmation. When the correction starts, something relatively expected but still a cognitive shock (like this: Merkel Coalition Doomed; Italy Exit Only a Matter of Time? globaleconomicanalysis.blogspot.com/2013/03/merkel-coalition-doomed-italy-exit-only.html) might be the excuse to set it off.

  5. Greg0658 says:

    “However, the early 2000s proved that you can still have a massive stock market crash even though the economy is not suffering too much overall.”

    Yes it’s called > I want my money back to do what I WANT to do with it

    and is generally fine* if everybody doesn’t want it all at once – ie bank-run NO aka stock-run

    * workcations shoot’g advertisements with superstars & buy’g ads in msm (basic buy influence kinda stuff)
    * top-tier pay scales and that trickle down into upper scale products & services
    * worst of all and be warry** of crowd over-reaction + or – .. the power of that buildup of that very important ability to create something out of molecules and sell it to you because you just gotta have it (and will slave away for it)

    ** of power play’aarrss

  6. Concerned Neighbour says:

    The only sentiment that matters is that of the Federal Reserve committee. They *are* the market.

  7. smedleyb says:

    Sentiment may be getting frothy but there’s enough bearishness out there (at 32.5%, it’s even higher than the historical norm) to give me pause as far as how to interpret the meaning of the current sentiment. What’s interesting is that the “neutral” camp has been decimated, sitting roughly 25% below it’s long term average. I guess being agnostic on the market is the only thing in a deflationary spiral these days. But is that a clue? Could the extremes be wrong, suggesting a more range-bound market awaits us?

  8. [...] mentioned last week that bullish sentiment was getting a bit frothy. After a few weeks of record highs, expectations that stock prices will continue rising had [...]