Key Takeaways
- • Investors bought during equity downturns at unusually high rates in 2021: of seven down weeks so far, ETF flows were above average in five, or 71%, versus 11% in 2020 and a 35% average since 2014, according to AllianceBernstein.
- • AllianceBernstein attributes the pattern to record household cash, with the U.S. personal savings rate reaching 27% by March 2021 per the Bureau of Economic Analysis, now about 10%.
- • The firm argues the "buy the dip" trend provides a short-term cushion for equities but is not robust enough to justify heavier weighting of broader equity risk signals in allocation decisions.
- • AllianceBernstein expects the trend to fade, with August flows already showing moderation, and maintains a modest equity overweight with a tilt toward quality.
Summary
AllianceBernstein finds that investor behavior in 2021 has departed sharply from the usual momentum-chasing pattern. Of the seven one-week periods in 2021 in which equities fell into negative territory, investors kept buying at above-average levels during five, based on exchange-traded fund flows. That implies 71% of down weeks saw above-average ETF inflows, roughly double the firm's seven-year average. In 2020, only two of 18 weekly declines saw above-average flows, or 11%. The average since 2014 is 35%.
The firm says this buying has acted as a "backstop" for prices. Downside momentum is typically driven by retail investors selling into weakness, but recent buying into declines has offset that effect, with measurable impact on returns, according to recent studies cited by the firm. AllianceBernstein believes the trend has helped keep equity markets steady despite several sharp downturns, but does not consider its influence durable enough to warrant placing substantially more weight on broader equity risk signals.
AllianceBernstein attributes the behavior largely to unprecedented sidelined cash. U.S. savings since the start of the COVID-19 pandemic grew at the fastest pace on record, and the personal savings rate reached a record 27% by March 2021 according to the Bureau of Economic Analysis; it has since moved to about 10%, still above average. The firm also notes the current net-worth-to-GDP ratio, at roughly 6x the average, is a record. The firm expects these conditions to reverse as economies reopen, with the pace dependent on COVID-19 vaccination levels and the delta variant.
The firm stresses that the trend should not dominate portfolio decisions. Its long-term outlook for risk assets remains positive, based on a global recovery supported by pent-up demand, strong earnings, and accommodative fiscal and monetary policy, with inflation risks viewed as likely transitory. The firm recommends a modest equity overweight with a tilt toward quality. It expects the scale of 2021's dip-buying to fade, and says active multi-asset investors should keep monitoring a wide range of signals across stocks, bonds, diversifiers and real assets.
The firm says this buying has acted as a "backstop" for prices. Downside momentum is typically driven by retail investors selling into weakness, but recent buying into declines has offset that effect, with measurable impact on returns, according to recent studies cited by the firm. AllianceBernstein believes the trend has helped keep equity markets steady despite several sharp downturns, but does not consider its influence durable enough to warrant placing substantially more weight on broader equity risk signals.
AllianceBernstein attributes the behavior largely to unprecedented sidelined cash. U.S. savings since the start of the COVID-19 pandemic grew at the fastest pace on record, and the personal savings rate reached a record 27% by March 2021 according to the Bureau of Economic Analysis; it has since moved to about 10%, still above average. The firm also notes the current net-worth-to-GDP ratio, at roughly 6x the average, is a record. The firm expects these conditions to reverse as economies reopen, with the pace dependent on COVID-19 vaccination levels and the delta variant.
The firm stresses that the trend should not dominate portfolio decisions. Its long-term outlook for risk assets remains positive, based on a global recovery supported by pent-up demand, strong earnings, and accommodative fiscal and monetary policy, with inflation risks viewed as likely transitory. The firm recommends a modest equity overweight with a tilt toward quality. It expects the scale of 2021's dip-buying to fade, and says active multi-asset investors should keep monitoring a wide range of signals across stocks, bonds, diversifiers and real assets.
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