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The ‘dumb money’ and the ‘smart money’ are beginning to converge and would represent a risk if they continue to reach opposite extremes again, according to Liz Ann Sonders from Charles Schwab. 

Key quotes

“The stock market’s rally has been fueled by Fed-provided liquidity, but the 62% retracement between March 23 and April 29 suggests stocks were pricing in a V-shaped recovery in the economy. That is unlikely.”

“In contrast to the more bullish outlook being expressed by the ‘dumb money’ and the still fairly bullish positioning of the ‘smart money,’ investor sentiment in opinion surveys is significantly more subdued.”

“From an investor perspective, unlike consumer confidence vs. consumer spending, investors are saying they’re more bearish, but acting more bullish.”

“The percentage of S&P 500 stocks trading above their 200-day moving average remains extremely low at only 20%. That is significantly lower than 70-80% at this point last year (when the S&P was at about the same level as today).”