Investors are pulling money out of stock mutual funds, an ominous sign for the recent market rally, says financial newsletter publisher Mark Hulbert
“They (investors) typically add money to stock mutual funds as the market rises and withdraw money as it declines,” he wrote in The New York Times.
“During the bull market of 2002 to 2007, for example, there was a net inflow of more than $250 billion into domestic equity funds, according to the Investment Company Institute.”
But during the last eight months, when stocks soared more than 60 percent, domestic equity funds have seen an inflow of only $7.8 billion into domestic equity funds, according to TrimTabs Investment Research.
“If this had been a normal market environment, we would have expected a net inflow of at least $150 billion,” TrimTabs President Conrad Gann told Hulbert.
And the news got worse as the rally peaked.
Investors yanked out a net $11 billion from domestic equity funds in September, and another $3 billion in the first 19 days of October.
“If the money flow isn’t reversed soon, it would suggest that we are witnessing a so-called cyclical rally within a long-term bear market in stocks, not the start of a major bull market.”
Olivier Garrett, CEO of Casey Research, shares Hulbert’s bearishness.
The Dow Jones Industrial Average is vastly overvalued, he told Moneynews.com.
“We wouldn’t be surprised to see it back under 8,000 before too long.”
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