Sentiment Update: We Won’t Get Fooled Again or Meet the New Year, Same as the Old Year

Both investor sentiment surveys I follow showed bullish sentiment remains wells above average. The NAAIM (active money managers) survey for this week showed a minor decrease of 1.7% in bullish sentiment while the AAII (individual investors) survey showed an increase of 4.3%.

This week we will take a look at one additional chart courtesy of Liz Ann Sonders at Charles Schwab (H/T Prag Cap). The gap between so-called “smart” money and “dumb” is currently at what appears to be a two year high at 50-points with the “dumb” money being very confident. Looking at the correlation between the “smart” money and the S&P 500 it appears the “smart” money has been, well, smart.

This week, active managers have, on average, a 79% allocation to equities. This is down from 80% last week. The median allocation rose to 90% while the top quartile of active managers have an allocation of 100% or greater to equities with the bottom quartile having a 55% or less equity exposure. The eight week moving average is now at 72%. The 79% bullish allocation, while lower than last week, is still high by historical standards. The NAAIM survey started in July of 2006 giving us 235 weekly readings. The current 79% allocation is 31st highest all time; top 13%. The two week average of 81% is the 18th highest three week average putting it in the top 7.7%.

The NAAIM number measures current equity exposure (0% would be all cash, 100% fully invested). Additional detail can be found here.

Individual investor’s bullish sentiment rose to 56% this week from 52% in the prior week. Bearish sentiment fell to 18% from last week’s reading of 20%. The Bull-Bear spread is at 38%, well above the series average of 9%. The eight week moving average of bullish sentiment increased to 52%.

While investor sentiment remains at historically high levels. Bullish sentiment in both surveys is greater than one standard deviation from average.

For analysis of the subsequent equity returns based on sentiment surveys please see the flowing links. AAII research here and NAAIM research here.


2 responses to “Sentiment Update: We Won’t Get Fooled Again or Meet the New Year, Same as the Old Year

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