Institutional investors cut stock allocation to lowest level since 2020

From Wall Street to Main Street, investors are trimming their stock holdings, suggesting the rally that followed the trade truce with China may not last.

According to AAII data, individual investors have cut their U.S. stock allocations by six percentage points over the past two months to 64%, the lowest level since the 2022 bear market.

Institutions are pulling back too. Their equity allocation dropped three points to 55%, marking the lowest level since 2020, and notably below the long-term average of 57%.

“A lot of capital remains sidelined,” The Kobeissi Letter noted, pointing to ongoing investor caution amid murky trading conditions.

The shift offers a more pragmatic reality check following the 90-day trade truce between U.S. and China after Geneva talks.

While trade talks are underway and both nations showed willingness to find middle ground, tariffs remain far higher than they were before Trump took office.

Economist Peter Berezin called the current trade environment “still a big shock” for markets long accustomed to frictionless global commerce.

“Pessimism Returns”

Despite strong gains over the past month — including a full rebound for the S&P 500 and Nasdaq Composite — many investors are questioning how long the momentum can last.

Ahead of the trade deal announcement, AAII sentiment data showed bullish sentiment — expectations that stocks will rise over the next six months — had dropped in early May and remained below average for 16 of the past 18 weeks.

Meanwhile, bearish sentiment isabove its long-term average for 22 of the past 24 weeks. The AAII noted that pessimism had “returned” after a brief uptick in optimism.

RBC economists Claire Fan and Nathan Janzen warned that investors have become increasingly reactive to trade headlines.

“The outlook remains nearly entirely contingent on U.S. trade policy, which is highly unpredictable,” they wrote.

They also cautioned that the broader macro environment is fueling “less demand for U.S. assets and the dollar,” adding to the shift in investor positioning seen in the AAII data.