I’m in beautiful Huntington Beach, California, for the annual Future Proof Festival. Just about everybody comes to this conference, so it’s a great way to catch up with pals who live all over the country.
My friends at Ritholtz Wealth Management host this event each year. You can catch a couple of my podcast episodes with the boys here and here. They’re a lot of fun.
I’m really curious to see the sentiment among all the people here at Future Proof. There are a ton of financial advisors and fintech folks in attendance. There’s a media presence as well, both traditional and new.
Sentiment is really important in what we do here at TrendLabs. This note in particular is focused on finding where everybody’s wrong.
Throughout the summer, investors were wrong about stocks. And it was one of the greatest summers in stock market history.
But, despite that, the American Association of Individual Investors (AAII) is heading into the fall with five consecutive weeks of members being more bearish than bullish over the next six months. Two-thirds of them are either more cautious now or have become outright bearish compared to how they felt at the start of the year.
That’s amazing to me. How is that even possible? So much pessimism in the face of relentless stock market strength and broadening participation?
Those are the individual investors. So what are the professionals doing?
Here is the futures positioning among asset managers and hedge funds:
The blue line represents the S&P 500, and the lighter green line shows you how underinvested they’ve been.
They sold into the hole and never got the chance to get back in.
This was a textbook V-bottom, and they’re still not back in.
This is one of those things that can help keep a bid underneath the market.
Digging just a little deeper into futures positioning, extremes are most visible in the Russell 2000, where these speculators had their largest net-short positions ever.
The setup in the futures right now, in my opinion, is we want Small-Caps over Nasdaq-100.
The S&P 500 just closed at new all-time highs. Many other markets around the world are at new highs too. These are the types of things you see in bull markets.
Something you tend to see in the earlier stages of the best ones is disbelief. The mispositioning in futures speaks to that.
While I’m out here in California, I’ll talk to hundreds of billions of dollars in assets, if not a trillion. Let’s see how bullish these folks are — or if they’re as skeptical as their asset-manager and hedge-fund cousins.
Financial advisors are different from those folks. And the fintech and media people don’t manage money; they’re the picks and shovels. But many of them are market enthusiasts and pay attention, in my experience.
So curious to get some feedback. I’ll make sure to fill you guys in on my experience.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs