“Wall Street Fear Has Yet To Grip Main Street”

Friday, October 26, 2018
By Paul Martin

by Tyler Durden
Fri, 10/26/2018

Earlier this week, when looking at a variety of market positioning and technical indicators, Goldman strategists laid out 7 reasons why, in their opinion, professional investors were bailing on the market even as retail investors continued to buy. These included:

1.Since January, “Professional ETFs” have seen outflows while “Retail ETFs” have seen steady inflows.
2.Futures show a reduction in net exposure for equity and bond investors over the past 7 months; however, institutional investors seemed to re-risk in equities during September.
3.Borrowing costs are increasing quickly as rising rates exacerbate the impact of widening credit spreads.
4.Equity volatility: increase in 2018 has been smaller than in 2007, but started from a higher level.
5.Market Makers providing less electronic liquidity in SPX Futures markets.
6.Corporate leverage is in decline: Decrease in Debt Issuance, increase in Cash Balances are only partially offset by Buybacks.
7.Economic impact of equity declines.

Now, picking up on this odd trend which has seen pros dump their exposure to risk while retail investors dig in, is Bank of America, whose CIO Michael Hartnett writes in his latest flow shows that the fear from Wall Street has yet to grip Main Street.

As evidence he references BofA’s Private Client ETF holdings (which now amount to $2.3 trillion in AUM) which show high net worth investors buying equities, and selling bonds, in reversal of BofA’s “playbook” from the four weeks preceding the last three prior market panics including Feb’16, Oct’11, and Mar’09.

It’s not just this week either: using client data flow, BofA notes that individual investors bought stocks while institutional and hedge funds were net sellers for the third week in a row, almost as if Joe Sixpack is convinced that central banks will bail him out even as institutions are increasingly worried their money printing god has forsaken them.

Meanwhile, thanks to retail demand, equity buying by all the firm’s clients rose last week to the highest level since late May.

This retail resilience, and persistence in buying, is a troubling sign to some. Speaking to Bloomberg, Liz Ann Sonders, chief investment strategist at Charles Schwab said the tenacious retail buying is a sign the selloff that has wiped out $2 trillion from equity values may keep going until buyers are exhausted.

“I would love to see the individual investors more fearful right now,” she said by phone. “It doesn’t quite feel yet that we’re at the kind of washout point. This probably has more to go.”

The Rest…HERE

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