Individual Investors Dip Toe Back into Stocks: Wall Street Journal Warns Top May Be Near

The “dumb” money (ie. that of individual investors) is back in the stock market — and that means the market likely is at its peak, according to the Wall Street Journal. The evidence: rising investment in ETFs and equity mutual funds, as tracked by EPFR Global. The American Association of Individual Investors (AAII) also found a striking growth in bullish sentiment when polling its members last week (graphic courtesy of the WSJ):

This is certainly a notable change. Just a few weeks ago Trim Tabs published data showing that retail investors were still eschewing US equities.
The Journal calls on investors to think twice, since studies show retail investors pile in at the market top.
But does this early data even count as piling in? 48% of the AAII members polled feel bullish on the markets over the next six months, compared to a historical norm of 39%.
But they’ve yet to put much of their money where their vote is. EPFR found $2 billion of retail investor dollars went to US equity funds over the last month. That’s a drop in the bucket when compared to the $162 billion they took out of US equity funds between January 2009 and August 2010 — $23 billion of that in August 2010 alone.
In the comments section of the WSJ story, Alan Brochstein, an analyst and well-followed contributor to Seeking Alpha, makes the argument that it will take some time, and quite a bit more investment, before individual investors have really come back into equities in force. He’s predicting a further rise in the markets, and expecting the S&P500 to hit 1,500 next year. The index closed just under 1226 on November 5, its highest close since 2008.

3 thoughts on “Individual Investors Dip Toe Back into Stocks: Wall Street Journal Warns Top May Be Near

  1. Pingback: World Spinner

  2. Geoff Considine

    The really interesting thing about the chart from the WSJ reproduced above is that investor sentiment appears to bottom out in early 2009, just prior to the start of the long and generally steady run-up in the market. It appears that retail investors (as a group) will have missed the recovery. Retail sentiment is now positive as the S&P500 hits its high for the year. This type of consistently bad timing decisions on the part of retail investors is precisely why TrimTabs finds that investors in equity mutual funds have managed to massively under-perform the S&P500. Granted, high expenses and such are a factor–but the largest factor is bad timing decisions.

    The other really interesting thing to think about is that the rise through 2009-2010 has occurred while retail money has flowed out of equities–so who do we think is buying the equity shares that the individual investors are selling? For every seller there is a buyer.

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