By Bryan McCormick
After earnings season in April, retail investors began taking funds out of stocks and pouring them into bonds. That basic pattern helped to keep a lid on equities and drive yields on bonds to near-record lows.
In the last two weeks, however, that flow has begun to reverse just as sharply as it began.
According to the Investment Company Institute, municipal bond funds were the big losers in terms of capital flow. An estimated $1.26 billion was pulled from munis in the week ending Dec. 8 and $4.85 billion in the week ending Dec. 15. This has followed lower prices in the same period.
Exchange-traded funds have been the preferred way for investors to play the equity markets, rather than mutual funds. Last week investors pulled some $6 billion out of equity ETFs, with $4.12 billion of that from the SPDR S&P 500 (SPY) alone.
Despite that rather big redemption, the previous week saw assets in ETFs hit more than $1 trillion for the first time. So it does appear that retail investors, while not rushing headlong into equities, are adjusting their allocations.
If more money comes out of bonds in the New Year, that could be a significant positive for stocks. We will have to wait and see how well retail investors have timed this move.
This fund reveersal could be coming at a market peak, or it could be the last ingredient necessary for stocks to break out of the holiday doldrums.
Disclosure: No position
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