Main Street investors, it seems, are having an allergic reaction to stocks, paring back on equity holdings and moving into cash and bonds in droves.
"Investors are on strike," Axel Merk, president and chief investment officer at Merk Mutual Funds, told USA Today, leaving Wall Street to worry the U.S. may lose an entire generation of investors similar to the time periods that followed the Great Depression and the early 1970s.
That worry is supported by research. According to Scottrade’s 2010 Investor Study, the most conservative investors of all: Gen Y (18 to 28 years old) and Gen Xers (29-45), the study found.
And while 73 percent of those who responded to said they still believe the stock market will produce long-term gains, 31 percent said they were "investing less money" or "investing more conservatively."
Moreover, The Investment Company Institute, a mutual fund trade group, reports that, since the beginning of 2008, stock mutual funds have suffered cash outflows totaling roughly $245 billion.
Bond mutual fund inflows, on the other hand, were almost $616 billion.
The current equity market surge isn’t likely to last, says ISI Group senior managing director Jeffrey deGraaf, who has been the No. 1 technical analyst in Institutional Investor’s annual survey for five straight years.
“It’s noise,” deGraaf told Bloomberg. “I would be more encouraged if volumes were heavier, if sentiment had reached what I thought was a capitulative extreme. Admittedly it’s choppy, but I don’t think it’s for real.”
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