February saw the highs in the equities markets. This was followed by one of the worst sell-offs in stock market history in March.
April and May brought about a nice rebound, with the S&P even topping the 3,000 level.
What is of interest to all is where do markets go from here? Are we going to see all time highs in the near future?
In a survey of millionaires, the belief is that market highs will not be reached anytime soon. They also removed the idea of a V-Shaped recovery in the economy which some are still holding out hope for.
According to the study, 2/3 of the millionaires believe that it will take longer than a year for the market to reach previous highs. More than 1 in 4 feel that it will take two years before we see those levels reached.
The survey was done with 750 people who have more than $1 million or more in assets for investment.
Nearly two thirds say it will take at least a year for markets to return to their all-time highs in February. One in four millionaires say it will take two years or more. The investment outlook by millionaires can have an outsized impact on the market, since millionaires own more than 85% of individually held stocks.
Market tops are often flush with retail investors, also known as "dumb money". Those with high net worth accounts tend to be on the sidelines when markets peak and reverse course.
This is where the big money is made. When markets correct, those with cash (or cash equivalents) are able to buy, as Buffett says, stocks that are "on sale".
For this reason, it is not surprising that the millionaires surveyed plan on staying mostly in cash for the next year. Only about 1/3 the money is likely to find its way into the markets. Most is earmarked to remain on the sidelines.
Could this be an indication to other investors as to where markets are going? The latest move up has many believing that things are going to return to normal. With the Fed printing so much money, the view is that it is backstopping losses.
The challenge with this position is the fact that when capital starts eradicating at an accelerating pace, all the stimulus in the world can keep up. Bankruptcies start flowing which is a sign of contractions. As banks get concerned about lending, the entire economy slows down. This puts a dent in companies numbers.
Ultimately, it comes down to the flow of capital. Is in going in or out? If these individuals are an indication, there could be hundreds of billions still sitting on the sidelines for the foreseeable future.
The quarter two earnings will start to tell the story for the rest of the year.
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