June asset allocation data from the AAII suggests that investors are beginning to act on their emotions. It’s not uncommon for sentiment to lead and positioning to lag, but the gap between the two had gotten historically wide. That is beginning to change as investors shift from equities to cash. The AAII asset allocation survey shows equity exposure dropping from 67% in May to 65% in June, while cash exposure rose from 19% to 21%. History suggests this could be the beginning of a larger unwind. When sentiment got to similar extremes in 1990, 2003 and 2008, stock exposure approached 40% from above and cash exposure approached 40% from below. By the March 2009 Financial Crisis low, cash exposure was above equity exposure. Even during the brief (though intense) COVID crash, equity exposure dipped to 55% and cash exposure jumped to 26%. If past periods are a guide, investors may only be in the early stages of adjusting equity market exposure.
