The richest go in cash, but the millionaire market is still in the minority

The fall in Netflix shares after a weak growth in subscribers caused a calm in the market about a running race for stock at home that might have reached its peak and there is more pain for pandemic winners like Zoom and Platoon. It seems that the richest investors are asking this question, and it is something more than the biggest winners of the pandemic, not to mention answering it by selling stocks and going cash.

The percentage of investors with a million dollars or more in self-managed brokerage accounts who ran out of market positions and went to charge in the second quarter more than double, from 7% to 16%, according to a new survey of wealthy investors from Morgan Stanley’s E-Trade Financial has shared with CNBC. The general upward trend also declined, with millionaire investments saying they are now bearish increasing by 6 percentage points, from 36% to 42%.

It may not seem like a big upturn, and most (58%) of those investors remain bullish, with more of the rich saying they expect the second quarter to end with an increase in the S&P 500 index.

Shares were higher on Wednesday, although Netflix’s big drop continued, with gains led by the market share most tied to the reopening of the national economy, small-cap stocks represented by Russell 2000, which had a 7% discount on the maximum of 52 weeks entering into trading.

But the survey details reveal notable and growing concerns about the Fed’s market, inflation and policy, as well as a significant decline in the technology sector’s upward trend and more appetite to move away from US equities. . Overall, the survey suggests that bearish stock markets are rising among the rich, even if most remain patient with an expensive, perhaps too expanded, stock market in the US.

The e-commerce survey was conducted April 1-12 among a wide universe of self-directed investors, with the results of 207 investors with $ 1 million or more in reversible assets provided exclusively to CNBC .

For Mitch Goldberg, New York-based investment advisor at ClientFirst Strategy, who a year ago was convinced the fund was down for shares after the March 23 low and bought based on that conviction, there are there has been a shift in sentiment towards the short term decline this has led him to lighten some stock positions and park cash even with low interest rates.

“In the very short term, I’ll be bearish, the next two months or so,” he said. “I’ve been raising some cash, it’s not defensive madness, I just think stocks have gone up a lot and I’ve bought a lot, it was very bullish when it had to be. Now it’s time to get a little off the table.”

With bonds not being an attractive alternative to equities, at least not yet, even in a market where fears about inflation are rising, “1.1% cash is fine for now because it is kept short term, ”he said. “I don’t think we have a 2001 or a 2008-2009. I still have money in stocks, just a little less,” he added, noting that he doesn’t expect the U.S. stock market in general to end the year in the red.

After the volatility experienced by first-quarter stocks (which included double-digit downward movements in technology and growth leaders, energy and small capitalizations before the rebounds), there was “a small profit taking,” says Mike Loewengart, Investment Director of E -Commercial Capital Management. “Cash uptake is consistent with a long-term vision. … as we get a strong return in 2020 and the first quarter, making a profit is fully online,” he said. “Over time we know that the market generally increases, but in a short period of time volatility can be painful.”

While many investors and market forecasts remain concerned about a larger downturn before the end of the year, the S&P 500 has promoted a 6% growth rate over the past century and bullish markets have a history that lasts for years.

Millionaires in the e-commerce survey are looking more for international markets and real estate, as convictions about the S&P 500 sector bet fall. Both the information technology and healthcare sectors saw a 19% decline among wealthy investors when asked to rate the sectors with the most current potential. Both had previously been the top selectors of more than half (in the case of healthcare, two-thirds) of the wealthy investors in the survey. Meanwhile, interest in real estate as the best bet almost doubled, from 16% to 31%.

“Real estate is adapting to this market, “said Lew Altfest of Altfest Personal Wealth Management, whose firm is launching its first private real estate fund this quarter.” What happens is that people are optimistic and at the same time recognize optimism and spending can lead to inflation and rightly worries them, as this leads to greater competition for bond stocks as they go. which increase rates. Some will get off the boat due to inflation, ”he said.

Fears about inflation as the number 1 threat to portfolios rose from 5% to 18% in the e-commerce survey, quarter on quarter.

Not only is the home hosting business too long, too fast for some, but the overall market.

The shift in rotation out of big technologies and pandemic winners and into reflation actions also “advanced” in Goldberg’s view. The higher movements make sense when you consider an American economy that generated a lot of growth expectations during the second half during the first half of the year, but because it has been so strong that it has caused fears, it has a total price in more shares and Goldberg not only reduces positions in some growth names, but also in large cyclical ones, although it is not sold completely.

An overflowing effect of these biggest winners, whether it’s a tech action or a basic consumer who grew up, has the defensive investment advisor. And having lived and invested through multiple bullish and bullish markets in the past, Goldberg said when big market names like Netflix start to fail (“first-tier” market shares) there are more reasons to worry about falling stocks, even if Netflix broadcasts are company-specific and are in stocks with a long history of big earnings changes.

It’s not necessarily time for investors to commit to their favorite blue-chips, like Microsoft, but to remember that the most speculative names in the market fall first and this leads investors to bigger, safer stocks. , but ultimately this higher level becomes even more expensive and is not immune to a market under pressure.

“There’s no doubt they’re more cautious,” Loewengart said. Overall, 68% of the rich in the survey say the market will rise this quarter, but 35% of those expect a gain of no more than 5%. “They see room for continuous improvement, although it will be a little different from what we’ve seen over the past year,” he said. “Fundamentals will matter again”.

The millionaire vision should be taken into account in the context of recent developments and the fact that so many expenditures have already been set on the reopening of trade, but balanced with the fact that the accommodative background of monetary policy remains of the Fed and the stimulus plan, and Now the prospect of spending on infrastructure, which creates “a highly conducive environment for more profits in the market,” he said.

JPMorgan Chase CEO Jamie Dimon recently noted that there are $ 2 trillion in current accounts that the accumulated demand of the consumer economy is “rolled up” and ready to go.

This helps explain the majority expectation of a continued rise in stocks, even amid rising gains. “More people are getting vaccinated and companies are being opened and really only the economy is coming back to life, going back to work and there is more spending on people,” Loewengart said.

Discretionary consumers saw the biggest jump among the most potential sectors this quarter in the e-commerce survey, which went from 17% to 31% of the wealthy, saying it was their top S&P 500 bet.

“There were a handful of very large tech companies running the market in general and now investors are focusing on the consumer and the real estate sector, which clearly benefit from the reopening,” Loewengart said.

The e-commerce survey shows that investors are bullish on the U.S. economy as a whole, with those rating the U.S. economy at D or F declining by about a third (34%) in the quarter past 17% today.

Altfest remains convinced of the US economic outlook as a driver of corporate profits, but says it is difficult for investors to assess whether GDP growth projections can be maintained at 6% or even reach 10% or if the economy ends up at 2% of world GDP, which would make the market a less attractive investment. “If we have five years of execution here, corporate profits can grow very quickly. And that can quickly offset a decline in P / E caused by inflation and still get good returns,” he said.

In fact, many rich people remain at risk. More people taking the survey say their risk tolerance has increased, from 24% to 30% in the second quarter, while the quarterly reading on millionaires who said their risk tolerance had declined was flat. Altfest sees investors wanting to keep working and looking for alternatives to large-cap stocks, though not always for the right reasons. And that bothers him more than any reasonable reassessment of valuations.

“Some are on the edge and looking for new investments. I’ve never had anyone call me about bitcoins or crypto and now they get calls from me.”

Amid declining sentiment among S&P 500 leaders, the e-commerce survey found higher levels of interest in cannabis, bitcoin and SPAC stocks during the second quarter.

Altfest has the same answer every time you receive one of these calls. “It’s not something you want to get involved with, it’s what I tell them.”

He doesn’t see the interest as investors looking for inflation coverage or analyzing the stock price / earnings ratio as high, but simpler: “Talk about greed. … what goes up will continue to rise is still the philosophy of a lot of people, when it should be exactly the opposite. “

This “exactly the opposite” view is one that comes close: SPAC transactions, in fact, have stalled as investor interest cools and regulatory control increases – and the e-commerce survey shows more millionaires, although they are a minority, take it as their current vision and act on it.