The one-year-old stock market rally has frequently been described as the most hated rally ever, because everyone has a theory for why stocks shouldn’t have rallied like they have, and because the rally has made so many smart people look like idiots.It’s also hated, in a very real sense, by normal investors who have never really bought into it.
In fact, in a story that we’ve told here regularly, US funds have experienced steady outflos, even as investors dump money into foreign markets and especially bond funds.
The Wall Street Journal surveys the latest data and finds more of the same. So far this year, $4.6 billion dollars have been taken out of domestic equity funds, while world bond funds have taken in a staggering $56 billion.
Why the reluctance to buy stock? Basically people are still flipped out:
“We don’t have estate-tax rules, we don’t know what’s going to happen with income-tax rates and dividend taxes, and health care is a very big cost issue,” says Neil Hokanson, a Solana Beach, Calif., financial adviser.
For the past two years, Mr. Hokanson has sat down with a small group of long-time clients as a sounding board for ideas and to gauge sentiment. Last summer, he says, their focus was on how they could participate in the rally. When they met recently, it was a different story. “They were very, very nervous about the markets and the future of the economy,” he says. “Concerns about deficits and government spending have really taken hold.”
“Their instructions to us are ‘preserve my capital,'” he says.
What’s going to happen now is we’re transitioning form the most hated rebound ever to the most hated recovery ever. We’re getting signs lately that the recovery is stabilizing (credit is coming back to life, the jobs picture is improving, retail sales aren’t horrible, etc.), but nobody will trust it, because they’re saddled with these big, macro, long-term fears.
That being said, the article does note that the trend may be starting to ebb a little. Equity funds did take in nearly $5 billion in February, and bond funds saw $1.7 billion leave.