Is there a sentiment disparity between professional and individual investors into the summer equity rally?

Maybe. On the professional side, we know discretionary cohorts were late to the party, but according to many positioning metrics, they’ve largely caught up to systematics.

But “caught up” may be a misnomer. “Forced in” is probably better. Capitulation among professionals feels begrudging. Indeed, the term “capitulation” implies reluctance. Capitulation is usually a manifestation of exasperation.

Retail investors, by contrast, don’t “have” to do anything, necessarily. They don’t have a benchmark. You might suggest that’d keep them sidelined for longer during times of uncertainty given they can’t be fired for missing a rally, but lack of accountability also means individuals are free to indulge their worst instincts when the mood strikes.

With all of that in mind (and it’s really just off-the-cuff editorializing), note that the disparity between global/institutional positioning in BofA’s Fund Manager Survey and US individual investor positioning looks anomalous.

Individuals are the most bullish since stocks (and crypto) peaked in late 2021. Meanwhile, the net share of some 250 fund managers who are Overweight global equities is still loitering in negative territory, which is to say they’re net Underweight.

Recall that individual investor sentiment inflected following Nvidia’s blockbuster guide in late May. Around the same time, the tide turned for US equity fund flows.

The figure above is a bit awkward (it plots the YTD net outflow from US equity-focused ETFs and mutual funds with the share of AAII bullish responses), but it gets the point across.

Back on the “professional” side of things, cash allocations rose in the July BofA poll.

The peak cash level was 6.3% in October, which coincided with the lows for equities. Cash reserves have come down since then, but remain elevated — “high but no longer uber-high,” as Hartnett put it.

Remember: Cash pays a lot these days. It’s the only asset class Goldman is Overweight on both a three- and 12-month horizon in their model asset allocation.

With curves still inverted and equity valuations stretched, I have some sympathy for anyone who’s reluctant to rotate out of a 5%-yielding ATM put in favor of duration or stocks.