LIVE MARKETS-AAII investors trim stocks, boost bonds 

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AAII INVESTORS TRIM STOCKS, BOOST BONDS

Retail investors took a small step back from stocks in October, trimming equity exposure and directing more money toward bonds, according to the latest American Association of Individual Investors (AAII) asset allocation survey.

Stock and stock fund allocations fell to 70.1% from 71.7% in September, while bond and bond fund holdings climbed to 16.6% from 14.8%. Cash positions were essentially unchanged at 13.31%, compared with 13.30% the previous month.

The move pushed bond allocations to their highest level since January 2021, reflecting a modest shift toward more defensive positioning.

At the same time, investors pared back what had been an aggressive preference for stocks. The stock-to-cash ratio slipped to 5.26 from 5.39 in September. While still elevated by historical standards, September's reading was the highest since December 2017, when it reached 5.53.

The decline suggests individual investors are moderating their preference for stocks, though they remain largely invested as cash allocations stay near their lowest levels since December 2017.

These measures are far from reliable market-timing indicators. However, they can offer useful perspective on investor positioning. Over the past decade, peaks in the stock-to-cash ratio have often emerged during periods when markets became increasingly vulnerable to volatility, and in several cases the ratio diverged from the market ahead of more meaningful pullbacks.

Notably, uncertainty picked up during the most recent period. The 20-day moving average of the Cboe Volatility Index .VIX ended September at 15.78, but finished October at 19.42.

The survey's shift toward bonds also coincided with weaker investor sentiment. AAII's weekly sentiment survey, released last Thursday, showed bearishness rising to its highest level since late September, suggesting individual investors have grown increasingly cautious about the market outlook.

(Terence Gabriel)

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