One theme that the stock market bulls have been touting for a while is “money on the sidelines.” This is the idea investors who have been pulling money out of stocks will eventually pour all of that money back in.
However, this particular theme has yet to come true.
David Rosenberg writes about it in his note:
The monthly ICI mutual fund data for June just came out. Investors yanked $6.3 billion out of traditional U.S. equity funds. This followed a $9.8 billion net redemption in May and marked the fourth consecutive month of outflow. This brings the cumulative YTD tally to net selling of $30.2 billion versus the $11.3 billion of net inflow during the first half of 2011.
For all the bullish talk about how the “mountain of money on the sidelines” was at some point going to be deployed in equities, this has yet to materialise, although equities have ground higher since the recent June lows, led by defensive sectors and issues. Indeed, money market funds did see a $46 billion net outflow in June. But the mountain of those proceeeds went into bond funds, which attracted $12.3 billion of fresh inflow (in addition to $14.1 billion in May).
Here’s a chart from Morgan Stanley also showing the outflow from equities:
Photo: Morgan Stanley