From the desk of Willie Delwiche.
Key Takeaway: With last month’s rally behind us and the June lows quickly approaching, investor attitudes are beginning to sour. Bears on the II survey now outnumber bulls for the first time since mid-July, and the Consensus bulls continue to decline. Despite this pessimism, investors have been slow to take action. They have kept equity exposure elevated and equity ETFs actually saw $20B of inflows last week (after the two preceding weeks saw $11B of outflows). Increased pessimism at this point is the most significant sentiment risk for stocks. Investors (and their portfolios) have been bruised by a perceived lack of alternatives to stocks but with short-term bond yields now at their highest levels that could be changing.
Sentiment Report Chart of the Week: Safe Havens Haven’t Been Safe
Anything can happen over the final 3+ months of the year, but so far 2022 has been a disappointing year on many fronts for most investors. The portfolio drawdown experienced by the average investor over the first six months of the year exceeded any previous 2-quarter decline in the past 45 years. The 60/40 stock/bond portfolio is on pace for its worst year since before World War II. One of the most challenging developments may be that typical safe havens haven’t offered much of a refuge. Our custom safe haven index (a blend of exposure to gold, long-term bonds and the Japanese Yen) has moved steadily lower all year and is now in drawdown approaching 30%. A logical support level is just ahead but there is little indication at this point that it will hold. It has been a risk off environment but not an environment with strength from risk off assets. This has contributed to poor sentiment and kept investors more exposed to equities than perhaps they would otherwise feel comfortable with. Despite weakness in stocks it has been easier for investors to stand pat than move into other assets where risks seem so well defined (higher rates for bonds, inflation for cash). Bad moods persist, but capitulation remains elusive.
