Game of Trades: Institutions are ALL IN

The stock market rally going on since November feels like it’s run too far, for too long. Stocks tend to perform weakly in February and March, but this year, that didn’t happen. Instead, stocks have continued to tick higher.

Meanwhile, another data point suggests that there’s more room for the rally to run. Institutional investors, also known as the “big money” have gone all-in the stock market right now.

They’re not fully leveraged yet, but they are at a level historically bullish for investors.

That’s an impressive feat, as interest rates remain at a 15-year high. That high rate makes keeping money on the sideline in cash competitive.

Until the leverage trend reverses, it’s likely that the market will continue to rally.

Average investors are increasingly bullish as well. That’s a further sign of market strength. However, as this trend peaks, it could be a sign that markets are ready for a pullback.

The reverse is also true. When investors are pessimistic about the market and leverage is low, valuations are likely low. That makes for a strong time to invest in the stock market.

Time will tell if the current bullish sign has more room to run. Such runs can often last as long as 12-18 months once sentiment gets bullish.

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