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RETAIL INVESTORS ARE BACKING STOCKS — AND A KEY CONTRARIAN SIGNAL IS NEARING A THRESHOLD

Individual investors grew a bit more optimistic about stocks in June, at least judging by how they positioned their portfolios.

That shift comes even as the American Association of Individual Investors (AAII) weekly sentiment survey — a closely watched gauge that’s often used as a contrarian signal — swung from hope to hesitation in the most recent release.

Looking beyond sentiment, AAII’s monthly asset-allocation data offers a clearer picture of what retail investors are actually doing with their money. And in June, the message was straightforward: investors added to stocks while trimming both cash and bond holdings.

Stock and stock fund allocations rose to 71.1% from 69.8% in May. Bond and bond fund allocations slipped to 14.4% from 15.0%, while cash holdings fell to 14.6% from 15.3%.

That pushed equity exposure close to levels rarely seen in recent years. The June reading was just a touch below the 71.2% reached in November 2025, the highest allocation since November 2021. Notably, that earlier peak came around the time major U.S. indexes were nearing their highs before the 2022 bear market.

One measure worth watching is the stock-to-cash ratio, which climbed to 4.87 in June from 4.56 in May as investors shifted more money out of cash and into equities. The move suggests a greater willingness to take on risk, helped in part by hopes that tensions in the Middle East would ease.

The market, however, wasn't entirely cooperative. After closing at a record high on June 2, the benchmark index turned choppy and finished the month 1.1% lower.

Even so, the stock-to-cash ratio is now approaching its February peak of 4.89. That could be significant. If the ratio fails to break above that level and instead starts moving lower, it would create a divergence that some market watchers view as a warning sign.

These indicators are far from perfect timing tools. But history suggests that peaks in the stock-to-cash ratio have often preceded bouts of market turbulence, with divergences occasionally emerging before more meaningful pullbacks.

(Terence Gabriel)

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