Updating one of our favorite data series from the Federal Reserve's latest Z.1 Release, we see that in the 3rd quarter, household and nonprofit's stock holdings jumped to 36.3% of their total financial assets. This is the highest percentage since 2000. And, in fact, the only time in the history of the data (since 1945) that saw higher household stock investment than now was during the 1999 to 2000 blow-off phase of the dotcom bubble. Perhaps not everyone is in the pool, but it certainly is extremely crowded.
As we've discussed many times, this data series is one of our favorite metrics pertaining to the stock market. It is not necessarily an effective timing tool, but is what we call a "background" indicator. It provides an instructive representation of the longer-term backdrop — and potential — of the stock market. It also serves as an interesting lens into investor psychology. As we wrote in a September 2014 post:
"This is one of our favorite data series because it reveals a lot about not only investment levels but investor psychology as well. When investors have had positive recent experiences in the stock market, i.e., a bull market, they have been happy to pour money into stocks. It is consistent with all of the evidence of performance-chasing pointed out by many.