GOOD-BYE, FEAR. Hello, greed.
Okay, maybe it's too soon to say investors are getting greedy, but it's pretty clear that their appetite for U.S. stocks is picking up.
More than a year into a powerful stock-market recovery, with the Dow industrials nearing 11,000 -- the highest level since September 2008 -- with favorable global economic trends gaining strength, investor sentiment is swinging toward U.S. stocks for the first time in a very long while.
There have been eight consecutive weeks of net inflows into domestic stock funds, with institutional investors setting the trend. Individuals began following suit three weeks ago. The flows are still relatively meager -- $11.5 billion the past four weeks, according to Cambridge, Mass.-based fund tracker EPFR Global -- but, importantly, they are consistent. Not since 2004 have U.S. equity funds posted positive inflows for a full year. Tired of missing out as stocks continue to rise after the biggest market rally since the Great Depression, and gaining more confidence in an economic expansion, investors are showing signs of favoring stocks over long-preferred bonds, whose best days may be over as the yield on 10-year U.S. Treasuries hit 4% earlier this past week.
At long last, too, investors are migrating from the sidelines, dismayed with the paltry returns offered by money-market funds: More than $300 billion has flowed out of money funds this year (through last week), an intense pace that already represents more than half the total outflows from the group last year, observes Brad Durham, EPFR's co-founder.
For some, the barrage of bullish economic indicators confirms the cyclical bull market is back on track and a double-dip recession will be avoided, allaying fears that beset the market earlier in the year.
"We are in an expansion, and it's better than expected," says Steve Leuthold, investment strategist and founder of the Minneapolis-based Leuthold Group, a provider of market research and money-management services. "It's different because it's led by an improvement in manufacturing and not by the consumer." And he argues that this isn't a "new normal" -- in which U.S. economic growth slows permanently -- as many contend, but a good old-fashioned "old normal" expansion. He points to the surprisingly high 5.9% fourth-quarter rise in gross domestic product as proof.
Leuthold sees the S&P 500 index reaching 1300-1350 in four to six months, 10% to 15% above its current level.
Consumer sentiment seems to be improving as well. The savings rate is down to 3%. Retailers posted record monthly same-store sales for March, helped by an early Easter. Luxury goods, furniture, appliances and women's apparel showed robust sales gains.
Auto sales were up sharply, and home sales came in better than expected. Ford (F) , General Motors, and Toyota (TM) reported impressive double-digit sales gains in March. Though largely driven by customer incentives, the improvement sharply contrasted with the situation last spring, when rebates failed to trigger much buying. The National Association of Realtors reported last week, too, that pending home sales, reflecting purchases of existing homes, rose sharply in February, exceeding expectations.
There are even signs the commercial real-estate market is stabilizing.
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