From the desk of Willie Delwiche.
Key Takeaway: Flow data showing equities attracting 71 cents of every ETF dollar in the first half of 2022 casts some doubt on claims that sentiment is washed out even as bears continue to outnumber bulls. New lows > new highs and excessive pessimism are features of bear markets, while new highs > new lows and building optimism tend to be seen in bull markets. The wall of worry seen in the AAII sentiment data off of the COVID lows is more an exception than it is a rule, especially in the absence of breadth thrusts or other evidence of strong participation. Between the ETF flow data and measures of household asset allocations, the risk is that the investor love affair with equities grows cold and they seek solace elsewhere. Overall the sentiment data now looks more similar to what was seen in Q1 2008 than what was seen at the lows a year later.
Sentiment Report Chart of the Week: Equities Feel The Flow
Discussions of sentiment often focus only on what investors say and not what they do. Usually this does not matter much. This is not one of those times. Later in this week’s report we take a closer look at the discrepancy between AAII data that shows how investors feel versus how they are positioned. But we can start with this. For all the talk about rampant pessimism, investors have kept buying stocks. Equity ETF’s pulled in another $32 billion in inflows in June, bringing the YTD total to $189 billion. Despite one of the most challenging beginnings to a year, there was only a single month of outflows. Equities attracted 71 cents of every dollar that flowed in ETFs in the first half of 2022. That is slightly slower than the 78 cents per dollar that equities attracted in 2021, but well above the 50 cents per dollar of inflows that went to equities in 2020.
