I remain unconvinced retail investors have let equities back
into their circle of trust. An easy way
to see this is through mutual fund flow, because mutual funds are predominantly
owned by retail investors. This chart
from JP Morgan (through May 2013) illustrates this:
I should note, other charts from Goldman Sachs show a
similar trend through mid-August. Point
being, retail investors have been selling throughout most of the rally, and
appear to be adding those funds and some cash to bonds.
But what we haven’t seen yet, even this year where bonds
have been under pressure, are retail investors selling those bonds and moving
them into equities. It appears most of
fund flows are coming from the money markets.
Glass half full:
this rally, which started in 2009 can have more steam if retail rotates into
equities from money markets or bonds. Glass half empty: retail is permanently
scarred from the financial crisis, and stays on the sidelines. I tend to think it’s more the former, but
this chart gives me pause:
Even with the equity markets up nicely for the year, at the
first sign of a minor pause, retail heads for the exit. So, while the trend is positive…
Scars of ’08 and ’09 still haven’t healed to the point where
we can say convincingly that it is sustainable.
But if that happens, this bull market could have some legs.
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