From the desk of Willie Delwiche.
Key takeaway: From a breadth perspective, the market is challenged right now by a scarcity of new highs. From a sentiment perspective, it has to contend with a scarcity of bears. Options data shows complacency even as risk appetites remain diminished. Bears on both the II and AAII surveys are near their lowest levels since 2018 and ETF inflows remain elevated. The household equity allocation tilt (versus bonds) is its most extreme since 1972. Stocks are loved, bonds are hated. All of this is very well summarized by our chart of the week from the Bank of America Fund Manager Survey which shows virtually no one is expecting (or prepared for) market volatility in the months ahead.
Sentiment Report Chart of the Week: Missing Bears
It takes bulls to make a bull market, but it takes bears to help sustain it. The Bank of America Fund Managers Survey found only 2% expect a correction >20% in the next six months, emphasizing the lack of pessimism amongst investors. An acceleration in a sentiment unwind could very quickly remedy this situation.
