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Home>UPDATE: Why your neighbor's stock buying should worry you

UPDATE: Why your neighbor's stock buying should worry you

UPDATE: Why your neighbor's stock buying should worry you


By Mark Hulbert, MarketWatch

U.S. household equity ownership is at near-record levels

U.S. households' equity exposure -- perhaps the broadest-based sentiment measure available -- has risen to near-record levels.

That's not a good contrarian sign, of course, but that hasn't stopped the bulls from trying to put lipstick on this pig. They insist that investors still hold lots of cash that is available to propel the stock market highe (http://www.marketwatch.com/story/stocks-test-support-and-subsequently-rally-2017-10-02)r.

Just last week, for example, a widely-shared article in the blogosphere blared: "An investing legend who has nailed the market at every turn just got even more bullish on stocks." His reasoning? "Ample cash remains on the sidelines." A number of the investment newsletters have been trumpeting the same theme; the editor of one recently wrote to clients: "There is still a huge population of underinvested individuals."

I'm not buying this argument, and you shouldn't either. Whenever household equity exposure levels have risen to levels as high as they are now, the stock market's subsequent 10-year return has been well below average.

Currently, according to Ned Davis Research, stocks represent 40% of total household financial assets, much higher than the 28.2% average allocation since 1951. There's been only one other occasion since 1951 in which stock allocation was higher than it is today -- at the top of the late 1990s internet bubble, when it rose to 47.5%.

Every other major stock market top of the last seven decades, in contrast, occurred when households' equity allocation was lower than today's level. At the 2007 stock market top, for example, the allocation peaked at 37.1%.

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