What are equity allocations telling us?

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The AAII Asset Allocation Survey polls its members on a monthly basis on their holdings among the principal asset classes. The results for December are as follows (with the long-term averages in brackets): stocks 64% (60%), bonds 19% (15%) and cash 17% (25%).

Investors in January increased their allocation to equities for the fifth time in six months, resulting in the largest equity exposure since December 2009 and only the second time since 2007 that investors have held more than 63% in equities. Considering the chart below, one can see that the allocation to stocks reached a peak of 78% in January 2000 and levels close to 70% were maintained from 2004 to 2007. Allocation to stocks hit bottoms in October 2002 (43%) and March 2009 (41%).

Source: AAII and Plexus Asset Management.

Importantly, the extreme stock allocations all occurred at or close to major market turning points. The allocation statistics therefore serve as a useful contrarian indicator (although the 2004 to 2007 period probably would have taken one out of the market at quite an early stage). But one can unfortunately not conclude much from the current numbers besides the AAII group of investors being somewhat more bullish than average at this juncture.

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1 comment to What are equity allocations telling us?

  • At the second S&P peak in 2008 the asset allocation was lower than 2000 and as we reach 1300 the allocation seems to be running out of steam again which is not as bullish as the bulls would have us believe. It seems that equity allocations are giving us a clear message after all!
    A market run by HFT algos and funded by the Fed may have some more mileage yet but mind your eye!

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