Email of the day (1)
Comment of the Day

February 08 2013

Commentary by Eoin Treacy

Email of the day (1)

on equity allocations
“Would it be possible to add the STALSTOX index to the chart library? Many thanks”,

Eoin Treacy's view Thank you for this suggestion which has been added to the Chart Library. The US Stock Market Allocations Stocks index offers a graphic representation of the allocations fund managers and strategists suggest for equities. The Index hit a peak near 72% in 2001 and while the S&P500 has been mostly rangebound over the intervening period the suggested allocation to equities has trended lower. The Index accelerated to a low near 40% by November and has since begun to rally.

Anecdotal evidence corroborates that the index is representative of how investors are being advised to structure their portfolios. The wall of money that has flowed into bonds and cash, particularly since 2010, represents a significant pool of liquidity capable of fuelling a bull market in equities as perceptions shift.

Therefore while the short-term outlook remains skewed towards a period of consolidation and reversion towards the mean, the medium-term outlook is still quite positive. The other side of that argument is that if money is beginning to flow back into equities it is leaving bonds. The medium-term outlook for yields remains bearish.

Perhaps most importantly, a point covered in The Chart Seminar is that as a market ranges, expectations of upside potential deteriorate. This Index offers us a picture of declining perceptions of upside potential for equities which has only just begun to improve. When it is next back near 70 we will have a warning that expectations have become overly bullish.

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