Investor surveys indicate widespread pessimism but asset allocation data (and ETF flows) paint a different picture.
The Numbers: September saw the 5th and 6th times in history that the AAII weekly sentiment survey showed bears above 60%. When bears have growled in the past, exposure to stocks was in the 40s and exposure to cash was only slightly lower. Now, equity exposure is still in the 60s (and above the long-term average) and cash exposure is in the 20s.
Why It Matters: Sentiment extremes can be valuable contrarian indicators, but this can’t work as well if sentiment is divorced from positioning. If cash has not been accumulated as investors turn bearish, there is little to put to work when the crowd’s mood turns more hopeful.
In this week’s Sentiment Report we see plenty of evidence that investors are feeling pessimistic. We could be more constructive if those feelings had already been accompanied by action.
