Strategists Pull Back As Stocks Don't

 

For over a month, we've looked at various measures of sentiment, the vast majority of which were showing excessive optimism from one group or another.

 

Obviously, that hasn't impacted equities' performance so far.

 

One unusual outlier is the most recent recommended equity allocation among Wall Street Strategists.  It's a little over a week old, but even so strategists lowered their recommended allocation to 57% of a portfolio, from over 60% a few weeks earlier.

 

That allocation is the lowest since December 2009 when the S&P 500 was trading at 1105, and other than the bear-to-bull market transition period from December 2008 through December 2009, it's the lowest since 1998.

 

There isn't always a clear pattern to when and how much strategists alter their equity allocation recommendations.  Sometimes they ramp up exposure as stocks decline, other times as they rally.

 

What is striking about the current recommendation is how similar it is to late 2010.

 

At that point, stocks were recovering from the summer correction.  As they were challenging their previous highs, strategists really started backing off equities.

 

Same thing this time.  They recommended a steady hand during the correction late last year, now they're pulling back as stocks challenge their previous highs.

 

This is a big "if", but if stocks follow through on that pattern, then a breakout to new highs will be successful...at least for awhile.