Investing.com – U.S. household equity holdings currently stand at 30% of their total financial assets.
Conventional wisdom holds that this could be a signal for the start of a bear market.
But this is based on the mistaken premise households are sophisticated investors with impeccable market timing.
Two of the last three times the 30% level was reached stocks rose a further 40-60%.
Households held 29% of their financial assets in equities by late 1997.
Between 1998 and 2000, the S&P 500 posted a further total return of 60%.
The 29% equity proportion was also reached in December 2013. Since then the S&P 500 has gained another 40%.
The value of household equity holdings rather closely tracks the stock market as it moves higher or lower.
Two of the biggest bear markets in the past 50 years began when the equity ratio was well below 29%.
The 1987 crash occurred when the equity proportion was only 18%.
Households actually stepped up equity fund purchases when their equity proportion fell by almost half in the last bear market.
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