Big investors really like stocks right now. Data from State Street shows institutional investors on average kept 57.4% of their portfolios in equities through August. That’s the same exposure to stocks they had back during the 2007 housing crisis, and near a 25-year peak. Milestones evoking 2007 tend to make investors squeamish, conjuring up unpleasant memories of the financial crisis that engulfed global markets in 2008. But Nicholas Colas, co-founder of DataTrek Research, doesn’t think investors should fear another market calamity. Colas said stocks have been on a tear since 2023, while bonds have lagged. “This was not the case from 2004–2006, when the [S & P 500/Aggregate Bond Index] returned 13/14 percent, respectively,” he said. “High equity allocations now therefore feel more like a passive rather than active investment decision, as they have largely resulted from underlying asset returns.” Indeed, stocks have rocketed to record highs in recent years thanks to all the capital tied to the emergence of artificial intelligence, with investors looking to gain exposure to the trend. The S & P 500 has soared 79% over the past three years. Bonds, meanwhile, have struggled. The iShares Core U.S. Aggregate Bond ETF (AGG) has gained a meager 1.2% over the past three years. .SPX AGG mountain 2023-09-21 SPX vs AGG in past 3 years Colas also noted that while high equity exposure has limited upside in the past, periods such as 2000-2002 and the financial crisis were marred by major recessions and wars. “By contrast, the period since 2023 has seen the U.S. economy and financial system weather many shocks and come out none the worse for wear thus far. We therefore remain bullish, despite that now being very much the Big Money view,” Colas said.
