GIH: The stock market has been off its highs, but more importantly, is a rotation out of stocks, in the largest equity outflow ever. Investors remember the financial crisis and may look at investing differently than before. Has the ‘buy and hold’ mentality finally been shook from retail investors? We are told that over the long run equity markets always outperform. Until they don’t. That’s what we were told about real-estate.
Last week it was the largest equity outflow in over two years [8]. This week, following the Monday drubbing which had the temerity to push the S&P to an “unprecedented” 5% from its all time highs, the timid retail investor said enough, and ran for the hills resulting in the largest equity outflow. Ever.
According to Bank of America, aAfter a 5% loss on the S&P 500 over the last two weeks (through February 5) equity funds reported the largest weekly outflow on record. Outflows from equity funds accelerated to $27.95bn this week from a $12.02bn outflow last week, again led by ETFs.” Sure enough, what goes out (here), must come in (somewhere over there), which is why at the same time all fixed income funds reported a record $14.09bn inflow. “Mutual fund investors were clearly seeking the safety of bonds, as three quarters ($11.05bn) of the total net bond fund inflow went into government funds and another $3.48bn into high grade.” The great unrotation has officially begun, and unless the downward momentum in stocks is halted (think USDSPY upward momentum ignition), the party may be coming to an end.
Full detail from BofA:
After a 5% loss on the S&P 500 over the last two weeks (through February 5) equity funds reported the largest weekly outflow on record, while bond funds had a record inflow. Outflows from equity funds accelerated to $27.95bn this week from a $12.02bn outflow last week, again led by ETFs. At the same time all fixed income funds reported a record $14.09bn inflow. Mutual fund investors were clearly seeking the safety of bonds, as three quarters ($11.05bn) of the total net bond fund inflow went into government funds and another $3.48bn into high grade. Outside of short-term funds inflows into high grade accelerated to $1.80bn. High yield funds, on the other hand, had an outflow of $0.91bn, similar to $1.04bn outflow last week, and EM bond fund outflows also remained elevated at $1.98bn. Loan fund inflows have remained little changed, however, coming in at $0.38bn, while muni funds were close to flat with a $0.07bn net inflow. Finally, money market funds reported a $5.85bn outflow.
[9]
Weekly equity fund flows:
[10]
Weekly fixed income flows:
[11]
