Last night the Federal Reserve updated its quarterly Flow of Funds (Z.1) report for Q4. The quarterly report measures income, savings, assets, and liabilities of various macroeconomic sectors. Looking at households specifically, we can measure aggregate exposure to stocks by looking at their holdings of equity investments relative to other assets. We note that this does not include mutual fund shares but it does include ETFs, closed-end funds, and REITs.
As shown below, the value of equity market assets held by households is up to 16.8/% of total assets, the highest since Q3 of 1969 and surpassing the 16.7% peak from the tech bubble. Looking at financial assets only, equity exposure is the highest since the 24.2% peak from 2000, but is nonetheless extremely elevated. We should note that while this signal is certainly a contrarian indicator, it doesn’t necessarily mean that equity markets must decline in value; there’s no reason that markets can’t continue to climb and raise the share of equity ownership further.
Things look different when we include household holdings of mutual funds and other exposure to equities. In the chart below we account for indirect allocations to equities. By this measure, Q4 equity market exposure rose to 38.0% of financial assets (versus the Q1 2000 peak of 38.3%). Equity exposure as a percentage of all financial assets hit a record, surpassing the old peak of 26.4% with a 27.0% reading in Q4. In short, households are very aggressively exposed to equity markets. This blog post is adapted from an analysis included in our nightly Closer report. Click here to start a free trial of Bespoke Institutional to get immediate access.