The DJIA closed north of 15,000 for the first time. The S&P 500 joined it at a new pinnacle. The question of the day is: Why are so many investors unhappy?
Simply put, they screwed themselves and can’t blame their brokers and advisors this time around. The net money flow figures from the mutual fund universe go a long way towards explaining what took place.
Individuals have been continuously taking money out of domestic equity funds since 2007. Cumulative net domestic equity fund redemptions from 2007 to 2012 came to about $584 billion. Recovering markets in 2009 and 2010 only stemmed the pace of withdrawals. 2011’s very contentious debt ceiling negotiations followed by the European banking crisis re-accelerated the trend.
Where did most of that money end up? Bond funds. Taxable fixed income funds saw seven-year cumulative net inflows of a staggering $1.09 trillion. Muni-bond funds picked up an additional $155 billion. Media focus on the looming fiscal cliff might have pushed already risk-averse traders past their personal tolerance thresholds. A full $297 billion moved into bond funds just during 2012 in spite of generational-low coupon rates.
As the stock market soared following the March 2009 nadir it was carrying fewer and fewer individual investors along for the ride. No wonder they are pissed off.
Those who bailed out on stocks missed a four-year, almost 83% rebound in the broad market. That doesn't even include the first two months of the sharp initial bounce off the March 9, 2009, depths.
The SPY’s return, including dividends, was more than double what investors settled for if they were lucky enough to have swapped into a 100% allocation to strictly long-term bonds.
Just four short weeks ago mom and pop were more bearish than they’d been since the dead lows of 2009. One poor weekly jobs number and heavy, unhealthy exposure to CNBC spooked them into an extreme state of fear.
We probably are not even close to the ultimate top of this frustrating, for non-participants, bull run. That will not occur until small investors decide it is once again safe to get back into the water.
The only thing worse than watching your stocks go down... is seeing them go up when you are no longer in the market.
This market is going higher.
See my Value-Oriented model portfolio here http://marketshadows.com/virtual-portfolios/virtual-portfolio/