In a recent strategy piece, Citi’s Tobias Levkovich highlights the bull and bear case for the market today. While highlighting that the current recovery might not be sustainable, and that there are risks to the U.S. economy once the Fed begins its exit strategies, at the same time he admits that stocks are still far from loved by the general investor population.
Not only does the Citi Panic/Euphoria model not show an extreme level of sentiment (though sure, this could be a bit of a black box), but fund flow data from the Investment Company Institute still shows a trend whereby bonds have been overwhelmingly favoured over stocks.
There is a wall of money parked in bonds that could be switched into other asset classes, such as stocks, or fair enough, commodities such as gold should inflation pick up. While more cautious than previously, Citi remains bullish on cyclical stocks.
Tobias Levkovich: “the flows to bond funds have massively trumped those into equity mutual funds, suggesting that the individual investors is still wary of equities, especially domestic ones.”
(Via Citi Investment Reseach, Equity Strategy “The Case For Bulls, Bears, and In-Betweeners”, 14 October 2009)