During a bull market, imbalances build up that seem scary but are not, in the moment, a deal-breaker. It’s only with hindsight that we look back and say, “Oh yeah, that’s where it started to change.”
This series points out the trends that will — eventually — be the warnings we should have heeded:
Households are overinvested in stocks
From the Kobeissi Letter:
US households' stock allocation as a percentage of financial assets hit a new record of 41.6% in Q1 2024. This is up from 30.5% in 2020 and even higher than in the 2000 Dot-Com bubble peak of 38.4%.
Since the 2008 Financial Crisis, household participation in stocks has more than DOUBLED. Since then, the Nasdaq has rallied 1,738% and the S&P 500 is up 702%. Since October 2023 alone, the Nasdaq and S&P 500 have seen 40% and 32% gains, respectively.
Households are benefiting from the historic run in stocks.
Market breadth is back to Great Recession levels
From Game of Trades:
US stocks are expensive compared to the rest of the world
From Tavi Costa:
Overvalued From Any Angle
To sum up, US stock markets are being elevated to historically unusual levels by a handful of high-flying Big Tech companies that face rising competition (Nvidia), slowing growth (Apple) and/or anti-trust scrutiny (Google). And Americans are as heavily invested in those stocks as they’ve ever been. Someday we’ll look back on this as a dangerous combination.
I believe money is being "printed" and shuffled to big banks (and international), island funds, and Blackrock types all with the intent to keep the market propped up. An exogenous event is coming very soon that will take the controls out of their hands. We are coming upon our "elevator moment".
It's not only US Investors who have a historically high level of investment in the US market. The whole world flooded in as funds hitched a ride in the US market. It had the strongest returns, which attracted ever more international investment, which drives even higher valuation, and more money pours in. A classic positive feedback loop. Be fearful when others are greedy.