Individual investors a bit more brash as they tap their cash stash
Main indexes red; Dow off most, down ~0.6%
Cons disc weakest S&P sector; Energy leads gainers
Dollar, gold up slightly; crude up ~5%; bitcoin off ~1%
U.S. 10-Year Treasury yield rises to ~3.83%
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INDIVIDUAL INVESTORS A BIT MORE BRASH AS THEY TAP THEIR CASH STASH
The American Association of Individual Investors (AAII) surveys its members monthly as to their asset allocation. This survey can offer additional insights into market sentiment. That is, how confident, or cautious, investors are.
Here is a table showing the percentages investors allocated to stocks, bonds and cash for the most recent month of September:
SEPTEMBER | |
STOCKS AND STOCK FUNDS | 68.74% |
BONDS AND BOND FUNDS | 14.45% |
CASH | 16.81% |
From a contrarian perspective, relatively low levels of cash can suggest investors are fully invested and complacent ahead of what could be an equity market top. High levels of cash can suggest investors are defensive and scared ahead of what may be an equity market low.
In June, investor cash fell to 15%, hitting its lowest level since November 2021. It then rose to 15.4% in July and then to 16.84% in August. The August print was the its highest level since January of this year. In September, it ticked down again to 16.81%:
Just looking back over the past 10 years or so, major S&P 500 index .SPX declines that began in May 2015, October 2018, February 2020, and January 2022, were preceded by individual investor cash troughs in the 13% to 14.8% area.
The increased commitment to cash over the past three months is concerning, though the near-10% S&P 500 decline from mid-July to early-August has been completely recouped, leading to fresh record highs. Thus, September's tick down in cash may suggest easing anxiety that the worst has passed for now.
If, however, individual investors were to resume building cash, it could be an issue. If the level exceeds October 2023's 19.73% reading, it would end the pattern of declining peaks and troughs in their cash position from the October 2022 high, and may well coincide with a much greater rise in fear amid greater market instability.
Conversely, if cash were to become significantly depleted again, and tests the past decade's lows, it will, from a contrarian perspective, also raise a red flag.
(Terence Gabriel)
*****
FOR THURSDAY'S EARLIER LIVE MARKETS POSTS:
ARE INVESTORS DRIVING THE UTILITIES SECTOR INTO AN OVERBOUGHT CONDITION? - CLICK HERE
THURSDAY DATA JAMBOREE: CLAIMS, LAYOFFS, SERVICES PMI, FACTORY ORDERS - CLICK HERE
U.S. STOCKS SLIP IN EARLY TRADE - CLICK HERE
UBS SEES ABOUT 7% UPSIDE IN MSCI AC WORLD INDEX - CLICK HERE
DOWN THE STRETCH, MOMENTUM INCREASES ITS LEAD - CLICK HERE
CHINA STIMULUS OFFERS ARRAY OF OPPORTUNITIES - JANUS HENDERSON - CLICK HERE
STOXX ERASES CHINA RALLY, AUTOS DRAG - CLICK HERE
EUROPEAN FUTURES EASE, TESCO UPS PROFIT FORECAST - CLICK HERE
PMIS TO PAVE THE WAY FOR RATE CUTS - CLICK HERE
AAIIAssetAlloc10032024 https://tmsnrt.rs/47UC0Wt
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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