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Average Americans have a lot at stake in the stock market

The average American household has become much more exposed to the stock market, according to a new report from Bank of America Merrill Lynch.

This level of equity exposure — similar to where the markets peaked prior to the financial crisis — is now roughly 50 percent higher than the 60-year average of 30 percent.

The market's returns have just about tripled those from bonds over the last seven years. Thus, this exposure and increase in households' equity allocation is likely the result of the market's outperformance over other asset classes such as precious metals and bonds, rather than a "big shift in preference for stocks," according to the note published Tuesday.


And the Federal Reserve Flow of Funds data, upon which these averages are culled, are generally supported by trends in the BofAML's private client allocations.

Indeed, Americans' investment habits have shifted.

According to a Gallup poll published in April, just over half of Americans say they invest in stocks — this matches the lowest ownership rate since Gallup starting this poll. Ownership rose slightly in 2014 and 2015, but is down to 52 percent from highs in 2007 and 2008, at 65 and 62 percent, respectively.

"It's just been a major, major migration away from what, you could almost say 'dumb money,' which is individual stock ownership into much more systematized ETF money, and that's actually exposed many more households to probably a better way of investing into a more diversified portfolio," Boris Schlossberg, managing director of FX Strategy at BK Asset Management, said Wednesday on CNBC's "Trading Nation."

These levels of exposures may be troubling for the near term, Schlossberg said, and a correction may be on the horizon, but the level has also been above the average exposure since 1988.

"So I can't really draw any ominous conclusions out of this whole thing," Schlossberg said.

This could also be related to investors' "chase for yield," a migration away from bond ETFs into stock ETFs over the last few years, he added.

Overall Wall Street sentiment in the market appears rather inconsistent with the new highs the market has made in recent months, or the level of exposure laid out in this research.

"One ingredient seemingly missing from this bull market has been investor euphoria," according to the note published Tuesday by BofAML's equity and quantitative strategy team, led by Savita Subramanian.

Chris Verrone, head of technical analysis at Strategas Research Partners, said Wednesday on "Trading Nation" that his firm surveyed 700 clients last week on their opinions of U.S. stocks; more than half identified as 'neutral.'

"That is not the exuberance you often find at market tops," Verrone said, calling this an "underappreciated and underloved" market.

In a report titled "Strategists still scorn stocks," published Monday by BofAML's equity and quantitative strategy team, the bank notes the contrast between the growing bearishness in the sell side of the financial services industry — creators of financial instruments like stocks and bonds — and the increasingly bullish sentiment on the buy side, that of firms like hedge funds and private equity funds.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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