Wall Street Strategists, so called

This fits perfectly with my cynical view of Wall Street and its sell-side minions.  In short, as a group, they can’t be trusted, and this chart seems to confirm that.  If not, it at least begs the same question you ask yourself every time you read this blog, namely, why should I care what you have to say?  This chart comes courtesy of sentimenTrader, a service to which we subscribe.  (More information on the service can be found by clicking here.  A free trial is available.)

The chart below is comprised of five plots.  First, pay attention to plots 1 and 3.  They show the performance of the S & P 500 (i.e. stocks) and the Treasury Long Bond (i.e. bonds).  Next, look at plots 2, 4, and 5, which show the consensus of all of the–presumably–wisest that Wall Street has to offer, the strategists, the big-bucks folks at the top of food chain, with respect to their recommended asset allocations.

Please note these observations:

  1. As stocks began to fall in 2000, strategists recommended drawing down cash and buying more stocks.
  2. Near the end of 2001, they began advising a reduced allocation to stocks.
  3. Practically speaking, they continued to advise–not the already reduced allocation, but a further reduced equity position to equities until 2006.
  4. The best that can be said of them is that they began to reduce equities, slightly, before the peak in 2007.

So, what do they advise now?  About the same allocation to stocks that they did in 1997, which corresponds to stocks being back to about 1997 levels.  With respect to bonds, they advise their highest-yet allocation to bonds.  And guess what, bonds have been the better performing asset class of the two, and yields on bonds–arguably the sole source of return on bonds–are at their all-time lowest.

Two takeaways from all of this, in my opinion.  First, strategists are as bearish now as they were at the start of one of the greatest three-year runs in market history.  (Great timing, that.)  Second, what if, when these folks begin to suggest higher equity allocations, investors follow their suggestions?  That should mean more money flows into stocks.  That is if–and it’s a big if, at that–anyone cares what Wall Street Strategists say.  Finally, keep in mind these are the folks who show up on CNBC.  Should you really care what they, as a group, have to say?  I don’t think so.

Wall St. Strategists


One Response to “Wall Street Strategists, so called”

  1. Wei says:

    Perhaps you have already read this, but in case you haven’t, this article fits your cynicism about sell-side perfectly also:


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