Individual investors reportedly are fleeing stock funds at the fastest pace in decades despite what may be the best year for stocks since 2013.
Investors have pulled $135.5 billion from U.S. stock-focused mutual funds and exchange-traded funds so far this year, the biggest withdrawals on record, according to data provider Refinitiv Lipper, which tracked the data going back to 1992.
Investors have shifted hundreds of billions of dollars into bonds and money-market funds all year long as recession fears rang and tariff wars lashed markets, analysts told the Wall Street Journal
The exodus to traditional safe harbors of investing is also a sign that investors aren’t chasing the stock market’s strong performance, seemingly setting record highs on a daily basis. This suggests major indexes like the S&P 500 still have plenty of room to run after a decade-long rally, WSJ.com reported.
“There’s not a lot of faith in this market,” Scott Wren, a senior global equity strategist at Wells Fargo Investment Institute, told the Journal. “There’s no chasing going on. Usually before you hit the top in a cycle, there’s a lot of chasing and fund flows are higher.”
With the S&P 500 up 26% this year, the second best gain this decade, investors now turn to a Federal Reserve meeting and the looming December 15 U.S.-China tariff deadline, Bloomberg explained.
“What the markets are priced for is the continuation of middling economic data, well contained inflation and a Federal Reserve that at least for the meantime sits on the sidelines,” said David Donabedian, chief investment officer of CIBC Private Wealth Management, which oversees roughly $60 billion. “We still view this as an unloved bull market.”
Before last week, the S&P 500 had gone 37 straight days without an intraday decline of 1%, the longest streak since January 2018. Inside of three months, the benchmark has jumped 9%, gaining in eight of the last nine weeks, Bloomberg reported. With 139 days colored green, the frequency of gains is 5 percentage points higher than the average over the last 25 years, the report said.
"An environment of bliss, it would seem. And yet skeptic minds wonder if it’s too much -- a last-gasp before the wind is sucked out. Gains have been too uniform, too robotic. There was a moment in late November when the S&P 500 had been up over the previous one, two, four, eight, 12, 26, 39, and 52 weeks," Bloomberg reported.
According to Sundial Research’s Jason Goepfert, that might seem like “blow-off top conditions,” but in data going back to 1928, out of 21 similarly steep ascents only three gave way to a 10% correction at any point in the year that followed.
Ned Davis, of the namesake research firm, compared the most recent run to so-called blow-offs of bull markets past and found that the pace of gains since mid-August rings of a “potential warning.” But in a research note this week he acknowledged, “what looks like a ‘blow-off’ at the time, may later turn out to be just another leg of a bull market.”
While the dispute between the world’s two largest economies commands the spotlight, other trade issues also have drawn investor attention. They include a recent delay in ratification of the North American Trade pact, potential U.S. tariffs on imported autos and Trump’s issuing surprise levies on steel imports from Brazil and Argentina, Reuters explained.
Optimism over a U.S.-China truce has helped push the major Wall Street indexes to all-times highs recently, with the benchmark S&P 500 logging a gain of more than 20% so far in 2019. But as the latest swings show, lack of a resolution to a trade dispute that has lasted nearly two years continues to weigh on the market.
“The problem is the uncertainty that the trade war process has on business decisions,” said Art Hogan, chief market strategist at National Securities in New York. “Without some sort of short-term truce, company spending gets frozen and that’s where it affects the economy and the market.”
This report uses material from Bloomberg and Reuters.
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