CHART OF THE DAY: The big investors are pulling out of stocks

Getty/Spencer Platt

The S&P 500 fell 0.63% on Friday. That leaves it up 1.05% for the month and 2.35% for the quarter.

The release of Q1 GDP and the negative print of 0.7% annualised highlighted the challenges still faced by the US economy.

So far those challenges, which include the Federal Reserve’s apparent intention to raise interest rates this year, haven’t impacted on sentiment toward US stocks. At least, not their prices.

But over the weekend, Business Insider’s co-founder, CEO and editor-in-chief reminded readers “how frighteningly expensive and risky stocks are these days…“.

He isn’t predicting a crash, just highlighting the risks. He’s putting his money where his mouth is and has stopped reinvesting in the current market and thinks the chance of a sharp correction of between 30-50% is high based on the current level of overvaluation.

I’ll leave you to read his excellent article but there was another chart published by US investment bank Jefferies on Friday which highlights that current US stock prices, up near all-time highs, are likely on borrowed time.

So far this year, more $111 billion has been pulled out of the US stock market by “professional” investors. That’s compared to a $76 billion inflow in 2014 and a $127 billion inflow in 2013.

Yet the market is still above the close for 2014.

That’s a warning sign and Jefferies reports that another $3.7 billion exited the market, according to the latest EPRF fund flow data. Flows are broad-based in the US, Jeffries said, with “large and small caps, Consumer Discretionary, Energy, Health Care and Industrials experienced more significant outflows in money terms”.

Clearly some other dynamic is at play at the moment. But, as we saw with last week’s volatility on the Shanghai exchange, risk is not one-way.

So, elevated prices with money flowing out at such a pace is another warning sign that US stocks – and by extension, global markets including the ASX – might soon be subject to gravity’s inevitable pull.

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