LIVE MARKETS-Individual investors' shrinking cash stash a concern

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INDIVIDUAL INVESTORS' SHRINKING CASH STASH A CONCERN

The American Association of Individual Investors (AAII) produces a weekly survey of stock market sentiment among its members. The survey is widely used as a contrarian indicator.

Last week, AAII reported that bullish sentiment has now been above its historical average for the ninth time in 12 weeks.

AAII also surveys its members monthly for their asset allocation, which tracks the percentage of its members' portfolios invested in stocks, bonds, and cash. This can provide another gauge of retail investor behavior and sentiment as it can show how they are adjusting their holdings across major asset classes in response to market fluctuations.

Like the sentiment survey, the asset allocation picture can also potentially act as a contrarian signal.

Here is AAII's most recent allocation data for January and December:

(percentages displayed may not add up to exactly 100% due to rounding)

January's equity allocation ticked down to 70.2% from 70.8% in December. November's 71.2% reading was the highest since 71.4% in November 2021.

At 14.4%, January's cash allocation was slightly below December's, making it the lowest cash stash since a 14.2% print in November 2021.

Of note, the small-cap Russell 2000 .RUT and the Nasdaq Composite .IXIC put in then-record highs in November 2021. The S&P 500 .SPX and Dow .DJI established their then-record highs in early January 2022. Bear markets ensued for all four indexes.

Meanwhile, with January's allocation changes, the ratio of investors' current commitment to stocks and stock funds vs. their commitment to cash increased to 4.88 from 4.78 in December, suggesting their appetite for stocks over cash remains robust.

Although the ratio still has room to rise before reaching its 5.20 August 2021 high, it nevertheless does appear elevated.

Timing may be blunt, but over the past 10 years or so, peaks in the stocks/cash ratio did precede periods of market instability.

Of note, since the ratio bottomed in April 2025, it's not seen back-to-back down months.

(Terence Gabriel)

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