More wealthy go to cash, but millionaire market bears still minority

The decline in Netflix stocks after weak subscriber growth has rocked the market as stocks that may have peaked may have peaked and pandemic winners like Zoom and Peloton will be in more pain. Wealthier investors seem to be asking this question – and it’s about more than just the pandemic’s biggest winners, let alone the answer by selling stocks and buying cash.

The percentage of investors with self-managed brokerage accounts of $ 1 million or more who sold out from market positions and went for cash in the second quarter rose from 7% to 16, according to a new poll of high net worth investors % more than doubled Morgan Stanley’s E-Trade Financial shared with CNBC. The general upside has also slowed, and millionaire investors who say they are now bearish rose 6 percentage points from 36% to 42%.

This doesn’t seem like a huge uptrend and the majority (58%) of these investors remain bullish. More of the wealthy expect the second quarter to end with the S&P 500 index rising.

Stocks opened a little higher on Wednesday, although Netflix’s big decline continued.

However, the survey details reveal notable and mounting concerns about the market, inflation and Fed policies, as well as a sharp decline in the upside in the tech sector and an increased appetite to move away from US stocks. Overall, the poll suggests that bear pockets are rising among the rich, even if the majority remain patient with an expensive, potentially overstretched US stock market.

The E-Trade survey was conducted from April 1st to April 12th among a wide universe of self-governing investors. Results from 207 investors with investable assets of $ 1 million or more have been made available exclusively to CNBC.

Short term bear market is back

For Mitch Goldberg, a New York-based investment advisor at ClientFirst Strategy, who believed a year ago that stocks had bottomed after the March 23 low and were bought because of that belief, sentiment about the short-term has turned Downside moves changed that has led him to relax some equity positions and park money in cash even when interest rates offer little.

“In the short term, I’m bearish, for the next two months or so,” he said. “I raised some money, not a crazy defense. I just think stocks have risen sharply and I’ve bought a lot. It was very bullish when I had to be. Now it’s time to take something off the table.”

Since bonds are not an attractive alternative to stocks, at least not yet, even in a market where inflation fears mount, “O.1% cash is fine for now because it will hold up for the short term,” he said. “I don’t think we’ll have 2001 or 2008-2009. I still have money in stocks, just a little less.”

After the volatility in stocks in the first quarter, which included double-digit declines in technology and growth leaders, energy and small caps prior to the rebound, there was “some profit-taking,” said Mike Loewengart, chief investment officer at E.-Trade Capital Management. “Raising cash is in line with a long-term perspective … as we have strong performance in 2020 and Q1, profit-taking is perfectly in line,” he said. “Over time, we know that the market is generally rising, but in a short period of time, volatility can be painful.”

While many investors and market forecasters remain concerned about a larger decline before the end of the year, the S&P 500 has seen an average growth rate of 6% over the past century, and the bull markets have a long history.

Sentiment has fallen sharply in the top sectors of the S&P 500

Millionaires in the e-trade survey are more focused on international markets and real estate as S&P 500 sector betting conviction falls. Both the information technology and healthcare sectors saw high net worth investors decline 19% when asked to rate the sectors with the greatest potential today. Both were previously the top picks of more than half – healthcare two-thirds – of the wealthy investors in the survey. Meanwhile, interest in real estate as the best bet has doubled from 16% to 31%.

“”Real estate fits that market, “said Lew Altfest of Altfest Personal Wealth, whose company launched its first private real estate fund this quarter.” The crux of the matter is that people are optimistic while realizing that optimism and spending could lead to inflation and are rightly concerned as it will lead to increased competition for stocks from bonds when interest rates rise. Some will get off the boat because of inflation, “he said.

Fears of inflation, the number one threat to portfolios, rose from 5% to 18% from quarter to quarter in the E-Trade survey.

According to a second quarter 2021 e-trade survey, wealthier investors will make money and cast doubts about the strongest parts of the market, including technology, but the bulls are still in the majority.

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It is not just home trading that has gone too far and too fast for some, but the market as a whole.

The rotation trade away from big tech and the pandemic winners to the reflation stocks was also “way ahead” in Goldberg’s opinion. The higher moves make sense given a U.S. economy that pulled a lot of growth expectations for the second half into the first half, but because it was so strong that Goldberg cut positions in not only some growth names, but also big cyclical ones but not completely sold out.

A spillover effect from these biggest winners, whether it’s a tech stock or a booming consumer staple, puts him on the defensive. And after Goldberg has seen and invested in multiple bull and bear markets in the past, there’s more reason to worry that more stocks will collapse when the biggest names in the market like Netflix, the “first tier” stocks of the market, fail Start Even though Netflix issues may be more company-specific and are in a stock with a long history of large fluctuations in earnings.

It is not about time investors bet on their favorite blue chips like a Microsoft, but rather that investors who have seen previous market corrections remember that the more speculative names in the market fall first, and investors move on to bigger, safer stocks to lead. But ultimately, this top tier becomes even more expensive and is not immune to a pressurized market.

More cautious millionaire investors

“There is no doubt that they are more careful,” said Löwengart. Overall, 68% of the wealthy in the poll say the market will rise this quarter, but 35% of them expect no more than 5% profit. “They see room for further improvement, although it will be a little different from what we saw last year,” he said. “Basics will be important again.”

The millionaires perspective should be seen in the context of recent performance and the fact that so much has already been priced into reopening trade but weighed against the fact that the accommodative monetary policy backdrop of the Fed and the stimulus plan remains in place The prospect of infrastructure spending, which will create “an extremely favorable environment for further market gains,” he said.

Jamie Dimon, CEO of JPMorgan Chase, recently noted that checking accounts of $ 2 trillion are pent up, making demand in the consumer economy topped up and ready to be spent.

This explains the majority expectation for stocks to continue rising, even amid the rising bear market. “More and more people are being vaccinated and the business is opening up and really only the economy is coming back to life, working again and spending more people,” said Loewengart.

In the E-Trade survey, consumer discretionary saw the biggest jump among the sectors with the greatest potential this quarter. They jumped from 17% to 31% of the rich, saying this was their top S&P 500 bet.

“There have been a handful of very large technology companies that are driving the overall market, and now investors are focusing on consumers and real estate that are clearly benefiting from the reopening,” Loewengart said.

The E-Trade survey shows that investors are generally optimistic about the US economy. Those who rate the US economy with a D or F have dropped from around a third (34%) in the last quarter to 17% now.

Altfest remains convinced of the US economic outlook as a driver of corporate earnings, but says it is difficult for investors to judge whether GDP growth projections of 6% can be sustained or whether the economy is returning to a world of 2% GDP, that would make the market a less attractive investment. “If we have a term of five years here, corporate profits can grow very quickly. And that can quickly offset a decline in the P / E ratio caused by inflation and still generate good returns.”

Indeed, many rich people remain in an attitude of risk. More respondents in the survey said their risk tolerance increased from 24% to 30% in the second quarter, while the value of millionaires was unchanged from the previous quarter, which said their risk tolerance had decreased. Altfest sees investors who stay go-go looking for alternatives to large-cap stocks not always for the right reasons. And that worries him more than any sensible re-evaluation of the ratings.

“Some are nervous and looking for new investments. I’ve never called anyone about bitcoin or crypto, and now I get calls about them.”

Amid the bearish mood, the second quarter e-trade survey found increased interest in cannabis stocks, bitcoin and SPACs.

Altfest has the same answer every time he receives one of these calls. “It’s not something you want to deal with, I’m telling them.”

And he does not see the interest as investors who are looking for a hedge against inflation or who analyze the price / earnings ratio of stocks as high, but more simply: “It speaks for greed. … what rises will go on.” up is still a lot of people’s philosophy when it should be exactly the opposite. “

This “exactly opposite” view is becoming increasingly popular – SPAC deals have actually stalled as investor interest cools and regulatory scrutiny increases – and the e-trade poll shows more millionaires are still in the minority are. take it as their current view and act on it.

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