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Mark Hulbert
April 27, 2010, 12:01 a.m. EDT · Recommend (1) · Post:
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By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- The gulf remains as wide as ever.
I'm referring to the stark difference in mood on Wall Street and Main Street. The mood of the former is quite upbeat, if not giddy -- fueled by the incredible bull market and helped along in no small part by last year's gargantuan bonuses.
The mood on Main Street, in contrast, couldn't be more different. Unemployment has barely receded, despite persistent reports that the economy is recovering. Far from seducing investors back into equities, as rallies often do, the recent bull market has led individuals to be angry and cynical about a system they're now convinced is rigged against them.
This is well illustrated by the choices mutual fund investors are making for where they should allocate their money. Over the last 12 months, according to data provided by Vincent Deluard, Global Equity Strategist at TrimTabs, the vast majority of new money has gone into bond funds, and the second most popular destination was international stock funds.
Almost none has gone into domestic equities.
Here are the specifics, according to TrimTabs' estimates: A total of $601.6 billion of new money was invested in open-end mutual funds and exchange-traded funds over the last year. Of that total, $440 billion, or 73%, went into bond funds. An additional $105 billion, or 18%, went into international stocks. And $53 billion, or 9%, was invested in hybrid and commodity funds.
Just $2.8 billion, or just 0.5%, went into domestic equities.
Nor is there any evidence that this trend is changing. For the month of April (through last Friday), according to TrimTabs, $22.1 billion of new money was invested in bond funds, $8.3 billion in international stocks, $2.7 billion in hybrid and commodity funds, and just $3.3 billion in domestic stocks.
What does all this mean for the stock market?
It probably is bullish for the short term. As Dan Seiver, editor of the PAD System Report, wrote to clients on Monday, "The general public, which seems to be always wrong at key market turning points, is not pouring money into stock mutual funds. Nor is there the buzz in everyday conversations about the stock market. The last bear, and the halting recovery in the economy, have kept a lid on naïve optimism, which is of course good for the stock market."
The longer-term significance of fund investor behavior, however, is more worrisome. To find a precedent for what they're doing, you have to go back to the 1970s, when -- in the wake of the punishing 1973-74 bear market -- fund investors continued to shun domestic equities for a number of years. In fact, according to data from the Investment Company Institute, it wasn't until 1982 -- eight years after the 1973-74 bear market ended -- that equity mutual funds experienced significant net inflows of new money.
That is an ominous precedent, of course, since the 1974-82 period was a frustrating one for stock investors, in which neither the 1974 low, nor the high the market reached before that bear market began, was broken.
If a similar script were to get played out this time around, the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 11,097, -107.54, -0.96%) for many years will remain confined to a range of 6,547 on the low-side (its closing low of the 2007-2009 bear market) and 14,165 on the high side (its closing high prior to that bear market).
That would still leave many opportunities for profit, of course. But notice that this would mean that we're still years away from the kind of secular bull market that we took for granted in the 1980s and 1990s.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of investment advisory newsletters. The HFD became a service of MarketWatch in April 2002. In addition to his regular columns for MarketWatch, Hulbert writes a column on investment strategies for the Sunday New York Times, a monthly column for Barron's.com and a column on newsletters for the Journal of the American Association of Individual Investors. Dow Jones and MarketWatch are launching a weekly newsletter, Hulbert on Markets: What's Working This Week.
Fabrice Tourre, the star witness at today's Senate hearings on Goldman Sachs' position in the months leading to the financial crisis, offers his own defense of the transaction that has drawn the attention of the Securities and Exchange Commission: It was legit.
11:59 a.m. Today11:59 a.m. April 27, 2010 | Comments: 24
- tlo | 5:42 a.m. Today5:42 a.m. April 27, 2010
"Mark Hulbert: Wall Street cheer absent on Main Street http://on.mktw.net/cj8zfw" 11:48 p.m. EDT, April 26, 2010 from MktwHulbert
"Mark Hulbert: Forecaster who called euro troubles weighs dollar http://on.mktw.net/cmxZ76" 11:36 p.m. EDT, April 22, 2010 from MktwHulbert
"Mark Hulbert: A rare buy signal with a good record http://on.mktw.net/ahj6nN" 11:28 p.m. EDT, April 20, 2010 from MktwHulbert
"Mark Hulbert: Sentiment, not Goldman, at root of gold weakness http://on.mktw.net/cULdQh" 11:42 p.m. EDT, April 19, 2010 from MktwHulbert
"Mark Hulbert: Sentiment picture improves this week http://on.mktw.net/bGBIjw" 11:21 p.m. EDT, April 15, 2010 from MktwHulbert
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