Hate, as your mother probably told you, is a strong word, and it no longer seems to capture the public's attitude toward stocks. Yet the typical investor still doesn't quite trust this market, feeling wary of its heights and suspicious of its foundations.
The way this mistrust plays out from here will be a big factor helping to determine how long and far the bull market can carry on.
Investor ambivalence can be glimpsed from a few angles. The monthly Bank of America Merrill Lynch global fund manager survey shows a record percentage of pros see a "just right" investment backdrop of strong growth and low inflation. Yet those calling stocks "overvalued" is also near record highs, and cash levels remain above average — hints of caution tempering the optimism.
Yale economist Robert Shiller has surveyed professional and amateur investors for decades about their market expectations. Right now, both groups' confidence that stocks will rise over the next year is near a multi-decade high. Yet the counterpart "Buy the Dips" and "Crash Confidence" indexes show elevated anxiety that the good times could end suddenly and painfully.
Other surveys show a fairly familiar pattern, with professional investors (tracked by Investors Intelligence, Market Vane, National Association of Active Investment Managers) largely bullish, refusing to fight a sturdy tape, while Main Street's faith in stocks is fragile, with the latest American Association of Individual Investors poll showing just 24 percent bullish on equities.
The movement of real investor cash conveys mixed messages of its own. Flows into stock funds have been uneven, with net withdrawals over the past three weeks as the market stalled near record highs. And when money does go into stock funds, it's overwhelmingly into passive index vehicles.
Year to date, $178 billion has gone into index funds, with $52 billion exiting actively managed portfolios that seek to beat an index. Since the end of 2008, there have been net redemptions from domestic equity funds, with the $756 billion into exchange-traded funds not quite offsetting the $877 billion out of traditional mutual funds. And over the past decade, Merrill says, $2.2 trillion has entered passive funds while the same amount fled active.
It's tough to pull a clear investor-sentiment signal from the sheer dominance of index funds. On the one hand, low-cost passive investments are simply a better mousetrap in many respects, one that's finally reached mass adoption.
Some argue that investors' willingness simply to accept the broad market's return shows a lack of the greed and hubris that often accompanies market peaks. Yet indexing also tends to be embraced in the latter stages of bull markets, as the public figures the asset class itself will give them plenty without paying a manager to try and outsmart it.
It's worth noting that whatever investors say and however they direct their marginal dollar, the public is plenty exposed to stocks right now, thanks mostly to market appreciation. Ned Davis Research tracks the percentage of household financial assets in equities, using Federal Reserve data. At last look it was 38.5 percent — well above the 28 percent long-term average and higher than at any time aside from the late-'90s bubble.
Seeing market metrics that are "highest ever aside from the Tech Bubble" has become commonplace. Broad equity valuations fit that description. The trailing price/earnings ratio on the median stock is now 23.8, likewise the highest outside of the years 1997-2000.