Stocks finished higher for the fourth time in the last five weeks, as the S&P 500 continued to distance itself from its March lows. However, despite one of the strongest stock market rallies of all time, a slew of recent data indicates investors are still very nervous and likely materially underinvested in equities compared to historical averages.
Investors Continue to be Skeptical
Per data from Fidelity Investments, nearly a third of their clients ages 65 and up sold stocks between February and March. Recent fund flow data echoes this investor behavior as assets in cash equivalent money market funds have exploded to $4.62 trillion per Refinitiv Lipper, by far the highest on record (see chart below).
Unsurprisingly, investor sentiment gauges, such as the AAII Investor Sentiment Survey, further confirm skepticism in the stock rally, as this week’s data showed bullish respondents fell to 24.4% in the week ending June 17, from 34.3% the prior week and significantly below the historical average of 38%. On the flipside, bearish sentiment rose to 47.8% versus the historical average of 30.5%.
Clearly investors are wary of this rally, but skepticism has been a major pillar of the bull narrative and this recent data likely only strengthens the idea that investors are underweight in stocks and a fear of missing out could continue to push more cash and money market funds into risk assets.
In addition, with short-term US Treasury rates well under 0.20%, it is very possible that record money market levels become fuel for stocks as investors consider the ~1.9% dividend yield on the S&P 500 and “buying the dip” continues to grow in popularity, the farther stocks get from March.
Famed investor John Templeton famously quipped that “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria” and today’s sentiment and market positioning certainly feels a long way from euphoric.
Ian Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO