By Joy Wiltermuth
Households, not hedge funds or major corporations, represent the biggest class of owners of the U.S. stock market.
That matters because households, the “placid gorilla” in U.S. stocks, haven’t cut and run despite this year’s sharp selloff, which means stocks haven’t hit a bottom yet, according to a Bank of America unit.
Collectively, households hold about $38 trillion in equity assets (see chart) through stocks, retail mutual funds and exchange-traded funds, $5.9 trillion of which was added over the last two years, according to a tally from BofA Global.
U.S. households now own roughly 52% of the stock market. And a look at three major market plunges since 2000 (see chart) shows that equities only bottomed a few quarters after significant selling activity from households occurred.
The Bank of America investment research team said a common refrain from July investor meetings was this: “Everybody’s already bearish, might as well buy.” But they still favor cash, credit and equities, in that order. Or at least until households, the “decision maker,” decides to make a move and sell.
U.S. stocks were higher Friday and heading for strong weekly gains in the days after U.S. inflation data for July showed signs of slowing price gains. The S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.20% was trading above the key 4,200 mark, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.14% has reclaimed the 33,000 level and the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.25% was higher after officially exiting a bear market midweek.