Small investor bullish sentiment made a big rebound from last week as confidence in the recovery and rally increase. According to the AAII bullish sentiment jumped to a three week high of 41.3%. This was a 8.9% jump over last week and though high, is not quite at alarming levels. Bearish sentiment fell to 31.2%. Charles Rotblut of AAII notes that though this is a large week over week jump investors remain fairly skeptical of the recent move in stocks:
“This is only the second time in the last 10 weeks that bullish sentiment has been above the historical average of 38.9%. Though many individual investors are hopeful that both the economy and corporate earnings will continue to recover, some investors are concerned that the markets have risen too far, too fast as of late.”
The AAII also released their allocation survey and it shows continued signs of optimism though not extreme bullishness or bearishness. Individual investors increased their equity exposure to 59.1% in March. This is below the historical average of 60%. Bond allocation jumped to 22.4% which is substantially higher than the historical average of 15%. Cash allocations continued to fall during the month.
The sharp decline in cash levels shows that investors are comfortable taking on more risk, but are not aggressively allocating towards equities. Bonds have been the beneficiary of recent money flows. This could shift in the coming months if investors grow increasingly convinced of recovery.
JP Morgan isn’t the only institution that is wildly bullish. The latest reading on Institutional investors also showed growing bullishness as they added to risky assets recently according to State Street:
“Globally, Investor Confidence rose 5.4 points to 108.0 from February’s revised reading of 102.6. The driving force this month was provided by Asian institutional investors, whose confidence rose 4.1 points from February’s revised reading of 96.7 to 100.8. Elsewhere the changes were more muted. North American investor confidence ticked up slightly to 110.4 from a revised February number of 110.1. In Europe, confidence remained somewhat on the back foot, declining from 97.3 from February’s reading of 99.8.”
Source: AAII, State Street
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.