Mom-and-pop investors tilt bearish despite all-time high stock prices

U.S. equities at a record? Volatility near historic lows? Retail investors are in no rush to celebrate.

At least that’s the sentiment of mom-and-pop investors who took part in the latest survey from the American Association of Individual Investors. In a week when the S&P 500 hit a fresh all-time high, more people said they are pessimistic than optimistic on shares.

While professionals often turn skeptical at market milestones, it’s uncommon to see retail investors tilt bearish when stocks reach records. It happened in 2017 and again for a short time last month.

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The survey’s sample isn’t gigantic, but it’s at least a snapshot on how views on stocks shift week to week. When the S&P 500 hit its first record this year in April, bulls outnumbered bears by a healthy margin. It briefly changed direction after a rally in June before flipping back into the negative this week.

The best start to a year for U.S. stocks since 1997 comes as money is being pulled from passive and active funds amid concerns that range from the trade war to slowing global growth. Companies reporting second-quarter earnings are mostly beating their profit estimates while leaving forecasts unchanged, hinting at trouble for the back half of the year.

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After two weeks of inflows, investors pulled $4 billion from U.S. stocks in the week ending July 24, Jefferies brokerage said in a note, citing EPFR Global data.

“You’re hitting all-time highs, but to most investors, if you ask ‘Doesn’t it feel great to be at all-time highs?,’ I don’t think most of them would say they’re throwing a party,” said Ronald Temple, co-head of multi-asset and head of U.S. equity at Lazard Asset Management. “It’s been a really strange grind higher.”

The wounds of early 2018 may be to blame. Back then, investors piled in too late and got hammered by a February rout. As the S&P made 14 record highs in January of that year, retail investors opened the biggest number of brokerage accounts since 2016, E*Trade Financial Corp. data showed at a time. The gap between the share of those saying stocks will go up to those betting on losses was at a seven-year high.

The proportion of bulls outnumbered bears over the summer of 2018 as stocks rebounded from earlier losses and reached news highs, but the survey data at a market high in late September that preceded a nearly 20% draw-down showed bulls and bearish investors were equally split.