Bullishness Surges After Hitting One-Year Low: Chart of the Day

Individuals’ confidence in U.S. stocks soared in the biggest two-week climb since March 2009, as data on employment and manufacturing data beat expectations.

The CHART OF THE DAY shows the proportion of respondents who were bullish rose to 43.9 percent, the most since April 15, according to an online survey by the American Association of Individual Investors. The increase from 20.7 percent on Aug. 26 is the largest two-week jump since March 2009, when the Standard & Poor’s 500 Index started a bull market that lifted it as much as 80 percent.

Stocks rallied for four straight days last week after the survey’s bearish reading dropped to 42.2 percent, the lowest level since Aug. 12, as gains in private employment and factory production exceeded economists’ estimates. Peak readings in the gauge in July 2010, November 2009 and March 2009 gave way to rallies in the S&P 500, data compiled by Bloomberg show.

“This market has whipsawed people all year,” said Walter Todd, who helps manage $850 million at Greenwood Capital in Greenwood, South Carolina. “But we had a pretty significant move higher heading into Labor Day weekend, when the survey was taken.” The bullish index saw “a hell of a change,” he said.

The AAII bullish gauge, which measures data back to 1987, has only doubled in a two-week period eight other times, and this week’s move is the fifth-biggest increase for that timeframe. The largest was in July 2000, when the gauge increased to 65 percent from 26.7 percent.

The AAII bullish gauge fell to 20.7 percent on Aug. 26, the lowest level since the rally began 18 months ago. The Chicago- based group takes answers from a few hundred people each week through its website on whether they are bullish, bearish or neutral on the stock market for the next six months.

“What is clear is confidence -- bullishness, bearishness -- is very volatile,” said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which manages $342 billion. “When data supports an improving economy, bullishness jumps dramatically.”

(To save a copy of the chart, click here.)

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

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