FAST FIVE: Retail Investors Are Acting As If A Financial Crisis Is Just Around The Corner
This is shown in the next chart, which depicts the probability of a US recession taking place in different years based on successive Blue Chip Economic Indicators monthly surveys conducted since 2017.
In other words, according to at least one measure, what is coming will be even worse compared to the financial crisis – after all, this time economists see what's coming; that nobody is acting on it yet, is a different matter.
an effort by retail investors to prevent their equity weighting from rising too much given the strong 15% rally in global equities YTD.” Indeed the equity share in the fund universe has been hovering at pretty high levels by historical standards since the end of 2017.
But at 61% this equity share is still pretty high by historical standards and equal to the previous cycle peaks of 1999 and 2006.
In conclusion, even an optimistic read of the ongoing liquidation by retail investors “poses a challenge to the bullish equity market thesis emerging from this week's positive news on US-China trade negotiations and Brexit” Panigirtzoglou concludes, because any upside from this week's news could be constrained by retail investors trying to prevent their equity overweights from rising too much.