Schaeffer's Trading Floor Blog

Data Drop: Retail Sentiment Turns Sour

Investor optimism has declined, according to ICI, AAII, and

by 4/26/2012 11:03 AM
Stocks quoted in this article:

The weariness of the retail investing crowd is evident in their attitude, suggesting a healthy disregard for equity investments. Recent data from Investment Company Institute (ICI) domestic equity fund flows , the American Association of Individual Investors (AAII) retail sentiment survey, and's Financial Security Index point to an investor who has had enough, and refuses to be "burned again."

The ICI is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). Members of ICI manage total assets of $13.3 trillion and serve more than 90 million shareholders. The institute's analysis of recent domestic equity fund flow data illustrates that every month over the past year, investors withdrew money from domestic equity funds -- to the tune of $177 billion in net outflows!

Domestic Equity Flows in Relation to the SPX

The AAII sentiment survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market in the short term. Individuals are polled from the AAII website on a weekly basis. This indicator can be used as a tool to measure crowd sentiment based upon retail investors. Currently, only 28% of investors are bullish, which is the lowest reading of the year, as well as the lowest bullish reading since September 2011.

By taking a look at the chart below -- which combines survey respondents who are either neutral or bearish toward the stock market -- you see how prevalent the pessimistic attitude has become.

AAII Bulls-Bears Data since 2011

And earlier this week, I posted a tweet about's Financial Security Index. A recent article entitled Americans Reject Stock Market Investments pointed out that 76% of investors "are saying 'no' to equities," while "only 18% say they are more inclined to invest in the stock market with interest rates as low as they are."

Oftentimes, retail sentiment will be used as a contrarian indicator, and clearly retail investors have a sour taste in their mouth. It appears we're on the doorstep of the old "Sell in May and go away" adage, as there are many concerns and qualms over corporate earnings growth and global economic activity, all in the face of uncertain times in Europe.

Yet it seems odd to me that the retail investor would be the "smart money" here. Bull markets climb a "wall of worry," and it looks like there are plenty of bricks lying around.

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