AAII Data Reveals Most Investors Are Retaining Stocks: Selloff Could Get Worse
Image courtesy of 123rf.

AAII Data Reveals Most Investors Are Retaining Stocks: Selloff Could Get Worse

AAII survey shows investors still holding on to their stock positions, implying more selling to come in a bear market.
Neither the author, Kingsley Alo, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

With the entire financial market currently in the doldrums, US sentiment data suggests that more sell-off may still be on the cards. Despite both the stock and crypto markets seeing a considerable downturn, AAII data show that actual selling is yet to happen. These metrics reveal that most investors continue to hold onto their stock positions for the time being. 

Further Selloff On the Cards

Last week the US Federal Reserve and Bank Of England announced a 0.5% hike in interest rates to help combat rising inflation. The dire economic situation, which hit levels last seen decades ago, has led to fears of a possibility of a recession. This panic has led to these apex banks taking actives measures to help curtail the rising costs and prevent a further economic downturn.

Following the hike, the global financial markets took a downturn, with both the stock and crypto markets seeing significant slumps. The immediate aftermath of the regulatory bodies’ actions saw over $144 billion wiped off crypto’s market cap, with the Dow Jones index plunging by more than 1000 points.

Since then, both markets have continued to slide downwards, with several calls starting to make the rounds about a possible bottom. However, historical precedent shows that these calls may be premature as a further selloff in the market is a possibility. 

The AAII Sentiment Survey determines the percentage of individual investors who are bullish, bearish, or neutral on the stock market in the short term. Usually, the metrics measured in the survey serve as a good indicator of a potential market bottom. However, they currently support the notion of a continued slump in the market.

AAII  Sentiment survey Source: Ycharts

Firstly, from the chart above, the AAII cash allocation is currently at 17.38%, up from 16.74% last month and 14.73% last year. However, this is lower than the 22.44% long-term average and indicates that investors are yet to rotate their investments into fiat.

Secondly, the AAII total Stock allocation is 68.42%, up from 68.52% last month and 69.96% last year. This is greater than the 61.55% long-term average showing that stock investors continue to hold their positions despite the market decline.

Historically, a clear indication of a market bottom and reversal is when cash and stock allocation reach the 50/50 region. The dotcom and global financial crisis in 2000 and 2008 give credence to this notion, as seen in the chart. Consequently, both metrics point to the possibility of a further slump in the stock market with the bottom calls wide off the mark.

Join our Telegram group and never miss a breaking digital asset story.

Stocks and Crypto Continue to Slump

Yesterday, stocks picked up from where they left off last week, with further declines witnessed in the market. As economic uncertainties rise and bond yields linger near highs, all trust in the stock market has eroded for the time being.

The Dow Jones Industrial Average fell 654 points, or 2%, while the S&P 500 was down 3.2%. The Nasdaq Composite was not spared at all as it slumped 4.3%. The crypto market closely correlated with the Stock market also saw significant losses.

According to Coinmarketcap, Bitcoin, which is believed could outperform equities, slumped by close to 10% in the last 24 hours. Ethereum, which recently had its highest gas spike, also fell by 9.16%. Consequently, investors should be careful and ensure their capital is preserved with more capitulation anticipated. 

Finance is changing.
Learn how, with Five Minute Finance.
A weekly newsletter that covers the big trends in FinTech and Decentralized Finance.

Do you think the financial markets are set for further slumps even as metrics indicate bottom calls may be wrong? Let us know your thoughts in the comments below.

Cookies & Privacy

The Tokenist uses cookies to provide you with a great experience and enables you to enjoy all the functionality of the site.