Stocktake: US equities are a hard sell
Just as ordinary investors appear to be being gradually seduced by stocks, institutional investors are falling out of love with the US market, according to Bank of America quantitative strategist Savita Subramanian.
Bank clients have been net sellers of US equities for six consecutive weeks, she said, while institutional client sales were the third-highest since 2008.
Hedge funds, too, have been selling, with private clients the only net buyers.
In fact, private clients have not only been net buyers for 24 of the last 27 weeks, they have been the only net buyers during this year. Institutional clients, in contrast, appear to be rotating out of US stocks and into global equities, she said.
Given how pricey US equities look relative to global indices, that trend might well continue for some time to come.
Newsletter writers in realms of euphoria
Market sentiment continues to look toppy. Despite recent declines, sentiment remains euphoric, says Citigroup’s panic/euphoria sentiment model.
This euphoria is particularly marked among investment newsletter writers, as measured by the Investors Intelligence surveys, with 56 per cent describing themselves as bullish and just 14 per cent as bearish – the lowest reading since before the 1987 market crash. Newsletters have been very bullish all year, but the bull: bear ratio has spiked higher in recent weeks, generating its first technical sell signal in almost three years.
Similarly, the weekly survey of the National Association of Active Investment Managers shows equity exposure is at its highest level since early 2011.
Ordinary investors don’t appear giddy, but they have become more bullish.
Bespoke Investment Group notes that, despite eight consecutive weeks of gains for the S&P 500, bullish sentiment never topped 50 per cent in the weekly American Association of Individual Investors surveys. However, bearishness is very low, and the bull:bear ratio looks frothy.
Retail investors have been cautious since the March 2009 bottom, but that wariness has dissipated, with inflows to stock funds this year hitting their highest level in 13 years.
Tactical caution seems wise although, with the market now in its seasonally strong period, a short-lived pullback appears more likely than a serious correction.
Looks like it’s going to be another Santa Claus rally
We noted earlier that seasonal patterns suggest any market pullback is not likely to be significant, given the propensity on Wall Street to enjoy an end-of-year Santa Claus rally.
That period aside, there is nothing especially remarkable about stocks’ performance during December.