From the desk of Willie Delwiche.
Key Takeaway: The sentiment backdrop is more characterized by a lack of optimism than widespread pessimism. This is in sharp contrast to the experiences of December 2020 and 2019. In those instances, too much holiday cheer led to hangovers in the year that followed (don’t forget, new highs peaked early in 2021 and many areas have been a sideways mess for months now). The current sentiment backdrop is not dissimilar to (though less extreme than) what was experienced in December 2018. Intense selling that month had investors thinking more about the Grinch than Santa Claus. While probably won’t get widespread pessimism this time around without further volatility - but if we do and investors throw in the towel on stocks, it could ultimately help light a fire that leads to early year breadth thrusts like what we experienced in early 2019.
Sentiment Report Chart of the Week: Households Are Loaded Up On Equities![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2021/12/willie1222021.png)
Quarterly data from the Federal Reserve shows that asset allocation at the household level shows a historically high tilt toward equities and away from bonds. There are certainly quarter-to-quarter variations, but the inverse relationship between the stock/bond ratio and forward returns for the S&P 500 is, over time, about as tight as they come. Households loading up on stocks (in terms of flows and overall levels) tends to be a headwind for returns.