Retail investors are more bearish than they’ve been since the 2023 market lows. That’s usually a contrarian signal—when everyone’s pessimistic, stocks tend to rally. But there’s a catch. Despite all the bearish sentiment, retail investors haven’t actually positioned themselves that way. The latest AAII Asset Allocation Survey shows their stock allocations remain high. They’re saying the market is doomed, but they haven’t pulled their money out yet.
Meanwhile, hedge funds aren’t waiting around. Goldman Sachs reports that institutional investors are selling stocks at the fastest pace in a year, betting heavily on a market downturn. And this isn’t just a U.S. phenomenon—pessimism is spreading across Europe and Asia, hitting nearly every sector except for communication services.
Then there’s the real issue. The U.S. economy has officially entered a recession. The Atlanta Fed’s GDPNow tracker has Q1 2025 GDP at -1.5%—driven by a collapsing trade balance and a decline in personal consumption. For all the talk of a strong labor market, the reality is clear—government and quasi-government jobs have made up the bulk of payroll growth. In February 2024, 85% of new jobs came from government-related sectors. Now that number has slipped to 70%—and it’s expected to keep falling.
The S&P 500 CAPE Ratio is now at its third-highest level in history, signaling that stocks are priced for perfection in an economy that’s already breaking. The Dow-to-Gold ratio is flashing historic crash warnings.
The market is running out of time. The recession is here, the sell-off is accelerating, and anyone still pretending this is business as usual hasn’t been paying attention.
Sources:
https://x.com/SuburbanDrone/status/1896306141598220580
https://x.com/NorthstarCharts/status/1896177160316227873
https://x.com/Barchart/status/1896219137451737144
https://x.com/kshaughnessy2/status/1896201080876511441