Bulls in Control as Earnings Prep to Peak

NEW YORK ( TheStreet) -- It's cool to be bullish again, according to the latest sentiment survey from the American Association of Individual Investors.

The AAII takes the pulse of its more than 150,000 members every week, asking if they are bullish, bearish or neutral on the stock market for the next six months. According to the results of its most recent poll ended on Wednesday -- before European Union officials came across with their big deal to stop the region's sovereign debt crisis in its tracks -- 43% of respondents see equities on the rise.

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That's up 7 percentage points from last week, and comfortably above the long-term average of 39%. The AAII, which was founded in 1978, doesn't disclose how many of its members participate in the survey each week. This week's jump above 40% is the first such result since the week ended July 7.

Unsurprisingly, the bear camp thinned considerably. Only 25.6% of those polled said they expect stocks to fall in the next six months. That was down 9.6 percentage points from last week, and it represents the first dip below the long-term average of 30% since the week ended July 14. Those saying they're neutral totaled 32%, up 2.6 percentage points from last week and just above the long-term average of 31%.

Since bottoming out intraday on Oct. 4, the major U.S. equity indices have surged back into positive territory for the year. The Dow Jones Industrial Average closed above 12,000 on Thursday for the first time since Aug. 1, and is on track for its best monthly performance in decades. The S&P 500 has gained more than 19% to 1284 since scraping its 52-week low of 1075 a little more than three weeks ago, and the Nasdaq has booked a comparable advance, going from 2299 to 2740.

That kind of performance, even removing the impact of Thursday's celebratory surge, was sure to bring some investors over to the bullish side of the fence.

Next week will see more discussion on the logistics of the European Union's designs, as well as a pick-up in chatter about the congressional supercommittee's Nov. 23 deadline to submit a plan to reduce the U.S. deficit by $1.2 trillion. The rumblings about another round of quantitative easing are also getting louder. Sentiment could take a slight hit, though, if the too far, too fast crowd rises above the general din or quarterly reports take a sharp turn for the worse.

Earnings season has turned out pretty good so far, according to latest data from Thomson Reuters, which finds the blended reported and estimated earnings growth rate for S&P 500 has swelled to 16.3% as of Friday from 13.1% on Oct. 3.

Of the 315 S&P 500 companies that have already reported, 71% have come in above analyst expectations, which is in line with the past few quarters. And despite the run-up in the index of late, the S&P 500 still has a reasonable forward four-quarter price-to-earnings ratio of 12.2X.

The best performing sectors have been energy, where profits are up 52.5% on a year-over-year basis; and materials, which has seen growth of 32.6%. The worst performers have been utilities, down 1.9%; and healthcare, up 6.5%.

One sour note has been the amount of warnings so far this earnings season. Thomson Reuters said 43 companies in the S&P 500 has issued negative outlooks for the fourth quarter vs. 14 positive outlooks and three in-line ones. The negative/positive ratio of 3.1 is above both the long-term average of 2.3 and much higher than a 1.1 ratio seen for the fourth quarter of 2010.

Next week, another 116 S&P 500 companies are slated to report their quarterly results, including two Dow components, Pfizer ( PFE) on Tuesday and Kraft Foods ( KFT) on Wednesday.

Among the other notables are Allstate ( ALL), Anadarko Petroleum ( APC) and Humana ( HUM) on Monday; AmerisourceBergen ( ABC), Baker Hughes ( BHI), and JDS Uniphase ( JDSU) on Tuesday; Clorox ( CLX), MasterCard ( MA), and Whole Foods Market ( WFMI) on Wednesday; Kellogg ( K), CBS Corp. ( CBS), and Starbucks ( SBUX) on Thursday; and Windstream ( WIN), Washington Post ( WPO), and Ameren ( AEE) on Friday.

Thomson Reuters, using its Starmine research product, also tabbed a number of companies it sees as likely to post negative and positive surprises next week. Among those seen beating the consensus are Archer Daniels Midland ( ADM), Genworth Financial ( GNW), and Duke Energy ( DUK). Those that look vulnerable to missing include Tenet Healthcare ( THC), Sunoco ( SUN), and American International Group ( AIG).

The Starmine research is described as a "weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts." Thomson Reuters says that if the Starmine estimate varies more than 2% from the consensus view, the company has surprised in that direction roughly 70% of the time.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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