From the desk of Willie Delwiche.
Key Takeaway: The unwinding of a liquidity-fueled speculative bubble is weighing on investor sentiment, pushing many indicators into areas that signal excessive pessimism. The challenge in the current environment is the disconnect between how investors say they are feeling and what (if anything) they are doing about it. Popular sentiment surveys are so widely watched that they seem to be producing more noise than signal. This makes less widely followed surveys (like those from Consensus and NAAIM) more useful. ETFs overall have begun to experience outflows, but there is still plenty of evidence that investors are looking for ways to increase equity exposure.
Sentiment Report Chart of the Week: Buying Weakness Isn’t Evidence Of Fear
Echoing the message from the AAII asset allocation survey is a Investor Movement Index from TD Ameritrade that shows investors were “net buyers of equities in April.” That’s an unlikely way to express the fear and pessimism that is evident elsewhere. A concrete example of this is what’s happening with the ARK Innovation ETF (ARKK). Despite a year-to-date drawdown of 60%, the fund has experienced net inflows of over $1 billion this year. What is happening in ARKK is the complete opposite of XLE. That ETF is up over 40% year-to-date and has actually experienced net outflows. With volatility rising and liquidity falling, making sense of the crowd has never been harder.
