Bears have become an endangered species. According to the American Association of Individual Investors (AAII), the percentage of individual investors with bearish outlooks over the next six months has been steadily declining since the 2008 financial crisis. It’s hard not to be optimistic when the world’s most powerful central bank is doing everything in its power to prop up financial assets.
Of course, the AAII survey polls retail investors, or what some refer to as “dumb money.” Interestingly, the smart money of the world has been just as complacent. According to the National Association of Active Investment Managers’ Exposure Index, active money managers are still historically overweight in equities.
Will more bears come out of hiding now with a rate hike looming? I wouldn’t bet on it. The Fed may have abandoned its “patient” stance on lifting rates, but Fed Chair Janet Yellen made it clear that the Fed is seeking a pickup in wage growth and general inflation before raising rates.
Yellen’s tacit commitment to dovish monetary policy should support equities, however these same policies only reinforce the importance of owning precious metals over the long haul.