PIMCO’s Bill Gross made waves on July 31 when he declared that the “equity cult” was dead.
However, Gluskin Sheff’s David Rosenberg declared the “equity cult is clearly over” one day before Gross.
The basic claim behind these calls was that stocks were falling out of favour as investments in diversified portfolios do to lower expected returns.
In a new note today, Rosenberg looks back on his call and does a bit of a 180.
It is very interesting to hear how pundits talk about the cult of equities being dead. I wrote about this recently, but realise that this line of thinking isn’t entirely accurate.
Rosenberg points to three reasons, which we summarize here:
- “American households still have 42% of their entire asset mix in the equity market…That is actually slightly below historical norms, but well within the range of the past. There were many other periods when stock market participation was lower.”
- There are many more bulls than bears. “The latest Investors Intelligence survey showed the bull camp at 51%…and the bear share holding at 24.5%.” Gluskin Sheff
- Retail investors aren’t abandoning equities. According to ICI data, much of the outflow from equity mutual funds into hybrids, which are basically equity strategies that feel more like bond strategies. Furthermore, “there is no complete information showing the extent to which individuals have also been shifting into ever-popular ETFs.”
Basically, there are major signs that show stocks haven’t fallen out of favour among investors.
Having said all that, Rosenberg nevertheless maintains a cautious outlook on stocks. He just wanted to clarify that the equity cult wasn’t necessarily dead.
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