From the desk of Willie Delwiche.
Key Takeaway: Despite the stock market’s reluctance toward sustained advances, investors have refused to throw in the towel. The bulls showed up last month, declaring their intent by triggering short-term breadth and momentum thrusts. Yet, as impressive as the display of strength was, they’re still waiting for the market to respond. Or at least the response they were hoping for. We would expect oversold conditions to reverse quickly after strong upside momentum and broadening participation. That hasn’t happened yet and bulls are showing signs of getting discouraged. If the relationship between investors and stocks isn’t going to be a two-way street, the likelihood of a broader and deeper sentiment re-set increases.
Sentiment Report Chart of the Week: Investors Not Giving Up On Stocks
Despite financial market volatility in August and evidence of increased caution showing up in options data and sentiment surveys, investors increased exposure to both stocks and bonds. ETF flow data show $28 billion flowing into equities last month and $15 billion moving into bonds. Commodity ETFs experienced their fourth month in a row of outflows. From an asset allocation perspective, individual investors have maintained above average exposure to stocks all year. This despite the talk about the equities being unloved and sentiment being at historically low levels. The first half of this year did not see the decisive move away from stocks and toward cash that was seen during previous periods of excessive pessimism (1990, 2002, 2008, 2020). The resiliency of that love affair could be tested as the optimism that emerged off of the June lows evaporates.
