about 1 year ago • 1 min
Retail investors have been dumping their stocks since late November, cutting their collective holdings to about $21.5 billion from $26.5 billion. The S&P 500 (purple line) and retail flows (green line) typically move closely in tandem, but with the latest selloff, a pretty wide disconnect has opened up. Historically, we do tend to see retail selling toward the end of the year, as investors seek to offset their tax losses on single stocks and move into ETFs to maintain their stocks exposure. But this year, that hasn’t been the case – and investors are taking their money off the table.
That’s likely because of rising fears of a recession and weakening job market, and because higher interest rates have simply made bonds more attractive. But FTX’s implosion probably didn’t help either, sending investor anxieties higher.
The market’s positioning measure shows that retail investors are holding less than usual in stocks, nearly 1 standard deviation from the norm. And sure, it could get worse from here: in December 2018 positioning fell to 2 standard deviations below the mean level. But, it’s not all doom and gloom: this positioning level suggests that investors are proceeding with caution, and that’s better than the kind of irrational exuberance that can lead to devastating losses for investors…
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