After a pullback last week in individual investor sentiment this week’s jump puts the sentiment reading back in the elevated range. The NAAIM (active money managers) survey for this week showed an increase of 6.0% in bullish sentiment while the AAII (individual investors) survey showed large increase of 9.5%.
This week, active managers have, on average, an 82% allocation to equities. This is up from 76% last week. The median allocation fell to 92% while the top quartile of active managers have an allocation of 100% or greater to equities with the bottom quartile having a 63% or less equity exposure. The eight week moving average is now at 78%. The 82% bullish allocation is more than one standard deviation from the historical average.
Warren Buffett’s Annual Letter: Mistakes, Buybacks and Apple
Warren Buffett published his annual letter to shareholders over the weekend. The annual update, which has become one of the largest events in the calendar for value investors, provided Buffett's views on one of the most turbulent and extraordinary years for the financial markets in recent memory. Q4 2020 hedge fund letters, conferences and more Read More
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 52% this week from 42% in the prior week. Bullish sentiment has been above 50% – one standard deviation from average – for 8 of the past 9 weeks.
Bearish sentiment fell to 27% from last week’s reading of 34%. The Bull-Bear spread is at 25%, well above the series average of 9%. The eight week moving average of bullish sentiment remains at 52%.
Finally this week we look at one additional seemly contrary indicator; the equity put/call ratio. Since late 2003, when the 20 day rolling average put/call ratio has fallen below .55 (roughly 1 standard deviation from average) the average 30 day returns are -2.2% (-0.7% median) versus a series average of 0.2% (0.8% median). The current 20 day average put/call ratio is .54. The last time the ratio dropped below .55 (April ’10) the market sold-off roughly 14% over the next month-and-a-half.
Overall, investor sentiment remains high. It appears that investors were not deterred by last Friday’s sell-off.
For analysis of the subsequent equity returns based on sentiment surveys please see the flowing links. AAII research here and NAAIM research here.