The S&P 500 Index has soared 120% since March 2009 and the millions of individual investors that abandoned the market during the financial crisis are now pouring more money than they have in years into stock mutual funds. Perhaps it’s the overkill of the phrase “Great Rotation” from their brokers or the host of sell side notes calling for an end to the Bond vs. Equity switch that has lasted for years given accommodative monetary policy and global growth finally starting to pick up? Maybe it’s simpler than that; herd mentality arriving late to the party and not wanting to miss out.
Recently the NY Times ran an article outlining that Lipper (market data flows) reported $14.9 billion of inflows over the last 3 weeks all into stock funds, the most since any 3 week period since 2001! This comes after they had removed about $416 billion from stock focused funds since the start of the crisis. US equity mutual fund investors continued to purchase equity funds last week, investing a further $6 billion, bringing the total amount invested into US equity mutual funds to $44 billion so far this year. A few weeks ago, even commodity funds reported gains across 18 US futures and options by 11% to 758k contracts, the biggest gain since July 3. Bullish oil bets had reached a 4-month high. Call me cynical, but how much more upside is there really if one were to invest new money into the market today?
Retail investors believe the fog has cleared. In their defence, significant tail risks have eased from last year’s elevated levels. Concerns around the potential breakdown of the Eurozone, fears of stalling Chinese economy, and Congress finding a short-term solution around the debt ceiling have been addressed to an extent, which has helped fuel this rush into Equities. When I start getting calls randomly from people (non finance related) looking to make a “quick buck” in the markets with no idea other than “not wanting to miss out” as they glance over newspaper headlines printing new highs for the equity market every day, that worries me! An analogy often used by my old boss: “When your cabbie in the morning starts quoting FX rates and Commodities telling you to buy equities as they are so cheap….something does not seem right!”
As the market rejoices to the “Show me the money” tune, investors and funds are scratching their heads wondering, “How high can these markets really go?”
(This is just a teaser from my latest MBCC newsletter published yesterday that highlighted fundamental discrepancies evident in the market currently and recommended active trading ideas to help capture and monetize on them. To read more or to subscribe to MBCC, please feel free to send an email to info@mbcommoditycorner.com for more details.)
