Institutional And Individual Investors More Bearish On Equities

 November 15 2018     David Templeton
At the end of October the American Association of Individual Investors reported individual investor bullish sentiment was 28.0%, one standard deviation below the bullishness average. Sentiment measures are contrarian ones and are most actionable at their extremes. October's reading was certainly not an extreme level; however, the reading was at a low level of bullishness for the individual investor sentiment measure. Since the January market high, the bullishness reading has vacillated between +26% to +45%, with a level in the mid teens being an extreme.  Today's reading of 35.1% bullishness falls within this range, as does the 36.2% 8-period moving average.

Interestingly, the NAAIM Exposure Index was reported at 35.1% this week. This is a level last reached in early 2016, i.e., near the market's 2016 low. The median response was 45% and was the lowest median reading of the year. For readers, 0% means active managers are 100% cash or hedged to market neutral and 100% means managers are fully invested.

Urban Carmel who writes The Fat Pitch blog, provides a review of the BAML November Fund Managers' Survey. Noted in his review,
"In one respect, they [fund managers] are still bullish: global equity allocations are still 31% overweight. Into the major lows in 2011, 2012 and 2016, fund managers were underweight. Allocations could easily fall much further before global equities reach a bottom. But in most other respects, fund managers are already very bearish:..."
From a contrarian perspective, bearishness seems increasingly a more pervasive thought. Sentiment is not at an extreme bearishness level yet. Other measure like the put/call ratio are elevated but not at an extreme, however, sentiment continues to move in a more bearish direction.