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Investors Becoming Less Bullish and ‘A Little More Afraid’: Jeff Macke Likes That

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Wall Street and Main Street investors need some clarity. So ahead of the jobs number tomorrow, we're focusing on sentiment.

The AAII Investment Sentiment Survey for the week ending Sept. 4 shows that froth is coming off investor sentiment and the bulls are fading a bit. Here are the numbers:

  • 35.5% Bullish
  • 33.2% Neutral
  • 31.3% Bearish

(Note: Numbers may not add up to 100% because of rounding.)

Related: Why Investors Should Ignore Economists

So what does this mean?

Lauren Lyster asked Breakout's Jeff Macke for his take. "I like the AAII results," Macke says. "You can see where sentiment is building. And right now one-third, one-third, one-third, that's perfect... I want people a little more afraid. And so only one-third of the folks at home are making good investment decisions and nice calls. I like that, I like those odds."

Related: Retail Investors Should Lower Expectations: Saintly

Merrill Lynch/BofA has a similar take on this same argument -- pointing out this week that the "Sell Side Indicator" shows that while sentiment on Wall Street continues to improve, it's still nowhere near "excessive" highs. Here's the most important graph:

"Wall Street’s bearishness is still as bad as it was at the market lows of March 2009. Given the contrarian nature of this indicator, we remain encouraged by Wall Street’s ongoing lack of optimism and the fact that strategists are still recommending that investors significantly underweight equities at 53% vs. a traditional long-term average benchmark weighting of 60-65%. Even though the S&P 500 has risen nearly 20% since sentiment bottomed, history suggests that strong equity returns can last for years after the indicator troughs."

(Thanks to Barry Ritholtz and The Big Picture blog for flagging and noting that the Sell Side Indicator is a reliable contrary indicator.)

Macke says that if you focus on sentiment, blue skies are ahead -- at least for smart investors:

"Corrections are a function of time and price," he notes. "And we've spent the last month-and-a-half scaring the bejeezus out of everybody. And now things are looking good. I don't think Syria is a big deal. I think that people are out of the market right now and they'll be chasing stocks higher into the new year."

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