JP Morgan: "US Stock Market Valuation Highly Dependent on Household Investment Sentiment"

Analysis of the Relationship Between S&P 500 PER and U.S. Stock Allocation Ratio
Growing Influence of the Household Sector on the Stock Market
Concerns Over Distortion of Market Valuation

A report has emerged stating that as the proportion of stock investments by U.S. households increases, the valuation of the U.S. stock market has become dependent on household investor sentiment.

On the 20th (local time), U.S. CNBC cited a JP Morgan report diagnosing a close correlation between the price-to-earnings ratio (PER) of the S&P 500 index and the allocation ratio of U.S. household stocks measured by fund inflows.

JP Morgan analyzed, "The more willing U.S. households are to hold stocks in their investment portfolios, the more expensive the stock market becomes, and vice versa." This implies that as the influence of the household sector on the stock market grows, the market’s valuation can be distorted according to household sentiment.

According to JP Morgan’s estimates, the proportion of stocks in the total financial assets held by U.S. households reached a record high of 43.5% in the fourth quarter of last year. Although the stock holding ratio slightly decreased to about 42% in the first quarter of this year, it remains at a high level.

This is attributed to the recent years of a bullish market and the increase in individual investors’ stock investments through online brokerage platforms such as Robinhood.

The problem is that changes in individual investors’ sentiment could lead to a decline in the stock market’s valuation. Regarding this, JP Morgan evaluated, "Since the S&P 500 index entered a correction phase, the household investor group appears to have somewhat 'underweighted' stocks in the fund sector."

Earlier, the S&P 500 index entered a correction phase after falling more than 10% from its peak on the 13th due to concerns over a recession triggered by the tariff war. Although the index has somewhat rebounded since then, as of the closing price on the 20th, it still remains about 8% below its peak.