Thursday, January 10, 2013

Stocks gain despite equity fund outflows

For a long time, my thesis has been that the equity market was moving higher despite all the bad news and despite the very negative assumptions embraced by the capital markets. Stocks are not riding a wave of optimism; if anything, stocks are up because the future hasn't turned out to be quite as bad as the market had expected. Mutual fund flows continue to confirm this.


According to data compiled by ICI, there has been an impressive exodus of investors from domestic equity funds over the past several years, and there is no sign that this is getting any better.


Bond funds, in contrast, have been growing like Topsy ever since the crash of 2008. Investors continue to shun equity funds in favor of less risky bond funds, a clear sign that negative sentiment prevails. 

5 comments:

Dr William J McKibbin said...

Over the long-haul, stocks have consistently outperformed just about every other kind of equity -- the only equity that arguably outperforms stocks are world-class skills -- everyone in America should commit to a lifetime of equity accumulation, including dividend-earning stocks, rent-earning real estate, and world-class skills that earn premium wages.

marcusbalbus said...

there is no valid price signal in a central bank planned asset market. you refuse to address or acknowledge this potential interpretation. shame on you.

William said...

RE: EQUITIES

I believe that this flow of funds is referred to as "stocks moving from weaker hands to strong hands".

PS Marcus, the Federal Reserve like all central banks has always been active in markets because of the simple fact that they determine - at a minimum - short term interest rates. It questionable how much influence the Federal Reserve has on longer Treasury rates in spite of their purchases. Overall the market for US Treasuries is gigantic and dwarfs the FED's purchases many times over.

bob wright said...

There has been a lot of money flowing into equity ETFs.

I wonder how much of it is coming from equity mutual funds.

Benjamin said...

Whopping Inflows to Equity Funds!!!!

Odd, just as Scott Grannis says the news on equity outflow is not getting any better we get this:

Market Snapshot
U.S. stocks post weekly gains; Dow, Nasdaq rise on Friday
January 11, 2013|Polya Lesova, MarketWatch
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NEW YORK (MarketWatch) — With the S&P 500 near a five-year high and data showing whopping inflows into stock funds at the beginning of the year, the cult of equity may not be quite dead yet, after all.

In a relatively quiet trading day, Wall Street was abuzz on Friday, discussing the latest fund flow data from Lipper.

Equity funds, including exchange-traded funds, took in $18.3 billion for the week ended Jan. 9, the fourth largest net inflows since Lipper began calculating weekly flows in January 1992. Some $10.8 billion poured into equity ETFs, while mutual funds took in more than $7.5 billion, their largest inflow since the week ended May 2, 2001.

The largest inflows since 2001.

Big rally ahead?

I am not sure. I would expect to see a lot more management LBO action if companies were underpriced......and Obama is not inspiring faith in the business class....