Wall Street "Nay", Main Street "Yay!"

 

A little over a month ago, we took a look at Wall Street strategists' recommended allocation to equities, which was dropping despite a rallying stock market.

 

It has dropped even further.

 

The latest update according to Bloomberg shows that strategists recommend an investor hold only 55.3% of their portfolio in equities.  Since 1998, the only time they recommended less exposure to stocks was from January - August 2009 (which turned out to be a very poor time to have low long-term exposure).

 

At the same time, individual investors are picking up the amount of their portfolios they hold in stocks, according to AAII.  In March it rose to 60.7% of their total portfolio.  That's not extremely high, but it's up from 52% a few months ago.

 

So currently, Wall Street strategists are recommending that investors hold 55% of their portfolios in stocks, but according to AAII some of those investors are actually holding more than 60%.

 

That's a "Wall Street minus Main Street" difference of -5%.

 

The widest negative difference was -9% in early May 2006.  That didn't lead to any kind of market disaster, though stocks did struggle for the next month.

 

The only other times the spread got to -5% or worse were in early 2005 and July 2007.  The 2005 occurrence again didn't lead to anything worse than a choppy market while the 2007 occurrence...did.

 

As for the opposite extreme, when Wall Street was +5% to +10% or more bullish than Main Street, stocks did well, especially long-term.  There were 81 weeks when the spread was +10% or more, and the S&P was higher a year later 91% of the time, averaging +19.0%.

 

The current spread is probably a minor cause for intermediate- to long-term concern for stock investors, but as usual this is a better "buy" indicator than "sell".  If we get to a time when the spread is +5% or more, then it'll be a good time to sit up and take notice.