‘How Is This Possible?’ Analysts Puzzle Over Stock Market’s Rally Amid Equity-Fund Exodus

Ted

FYI: U.S. stocks at the end of March posted their best quarter in nearly a decade, but they did so without help from investors in U.S. stock mutual funds and exchange-traded funds, which have seen sizable outflows since the start of the year, according to data from Lipper and EPFR global.

For the quarter, the S&P 500 SPX, +0.46% rose 14%, and added another 1.9% so far this month, putting the broad-market index just 1.3% shy of its Sept. 20 record, even as U.S. equity funds posted outflows of $39.1 billion, according to a Bank of America analysis of EPFR data.
Regards,
Ted
https://www.marketwatch.com/story/how-is-this-possible-analysts-puzzle-over-stock-markets-rally-amid-equity-fund-exodus-2019-04-05/print

hank

I’d hate to believe that equity valuations depend primarily on whether Joe and Jane Doe are buying or selling their equity funds over any given period. But that appears to be the unwarranted assumption underlying the author’s professed bewilderment.

I’d suggest possible buying by:

- investment holding companies (ie Warren Buffett’s Berkshire Hathaway)
- private individuals
- private equity funds
- pension funds
- college and charitable endowments
- hedge funds
- foreign buyers

The article mentions corporate buy-backs as well - another likely reason for rising valuations. And, to the extent fund managers have a degree of discretion, they may not be selling equities in lock-step with their fleeing investors. All this (and more) might explain rising valuations - even as mom and pop exit through the revolving door to lock-in 2% money market rates.

Old_Skeet

@hank: My charting of the MFI (money flow) for AGG and IEF representing bonds and SPY representing stocks reflects that last week there was a strong money flow out of bonds and into stocks. Not sure who the investors were that were making these moves; but, I'm thinking that it was more than the retail investor moving money. It sure does look like, to me, it was more like "Big Money" on the move.

With earning season soon to start ... somebody is thinking that stocks might be the better place to be over bonds. We shall see. Anyway ... stocks are catching some good inflows, this past week, while it was ebb tide for bonds.