Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stocks Bull Market Waiting For Retail Investors Finally Climb Aboard

Stock-Markets / Stock Markets 2010 May 06, 2010 - 06:21 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleJon D. Markman writes: Data shows that retail investors have not yet bought into the bull market. But when they eventually do regain their confidence, the market will soar to new heights.


Consider this: Trim Tabs Investment Research, a boutique data analysis firm in the San Francisco Bay area that's popular with hedge fund managers, last week declared that it had turned fully bullish from cautiously bullish on U.S. stocks. The firm thus boosted its recommended equity exposure to 100% long from 50% long.

The reason for Trim Tabs' change of posture: Its unique blend of macroeconomic data shows the U.S. economy making a gradual recovery, corporate buybacks are picking up during earnings season, and demand indicators are increasingly bullish.

Let's spend some time understanding their point of view, as the firm is influential among large institutions.

First, its analysts see income tax withholdings up 3.4% year-over-year in the past month, which is quite a bit higher than the 2.9% year-over-year growth rate seen in the three months prior. That suggests wages and salaries are rising sequentially, which is something we've talked a lot about in the past month. Also, Trim Tabs' proprietary measure of online job postings is up 33% year-over-year, which is the best reading of the past year.

As the economy improves, companies are feeling more confident about their business, and in many cases, they are investing in their own stock instead of just adding new production lines in their factories. When companies take stock out of circulation via buybacks, their earnings per share naturally rise. That makes their valuation lower, which in turn attracts more open-market purchases from third parties. Public companies also are buying other public companies at an increasingly rapid rate, which has the effect of taking more stock out of circulation.

Trim Tabs reports that five new cash takeovers using $3.9 billion in cash were announced in the past two weeks, and new stock buybacks last week rose to a four-week high of $4.5 billion. This is the ultimate in insider buying. Meanwhile, not too many initial public offerings are being launched, as the new-issues calendar has been relatively quiet.

Finally, Trim Tabs notes that investment demand trends are very favorable. They measure this in two ways, one conventional and one original. The first combines price, volume and breadth to determine the extent to which demand is exceeding supply; it's much like the method that Lowry's Research Corp. uses to construct its Buying Power and Selling Pressure indexes. The more interesting second approach determines the balance of fear and greed by looking at the cash balance of equity funds, excess margin debt, exchange-traded fund (ETF) flows and retail money market fund assets.

That second measure is super-bullish, says Trim Tabs, for this reason: Despite the continuing rally off the March 2009 and February 2010 lows, investors pulled $2 billion out of U.S. equity funds in April, bringing the year-to-date outflow to $6.6 billion. ETF investors tend to buy high and sell low, which Trim Tabs says that makes their actions one of the best contrary indicators in their data sets. In short, the more ETF investors hate stocks, the more Trim Tabs likes them.

Trim Tabs notes that U.S. equity funds have posted outflows in six of the past eight months, and have not received a $10 billion-plus inflow since May 2009. Since the average U.S. equity fund is up 8.6% this year, and the Standard & Poor's 500 Index is up 79% since the March low, it's pretty amazing that U.S. stocks aren't drawing more interest from mutual fund investors.

Strangely, the analysts observe that global funds remain much more popular than U.S. equity funds, taking in $4 billion in April. But it's bonds that are really getting the love. Bond mutual funds took in around $20.2 billion in April.

Trim Tabs says it's remarkable that retail investors don't seem to worry about governments' ability to service their debt, or that the average bond fund is up only 2% this year. In total, bond funds have received $110.6 billion this year, say the analysts - about 3.5 times the $32.0 billion that has flowed into equity funds.

Bottom line: The public has still not bought into this U.S. bull market yet. Retail investors will, you can be sure, but it will take a while before they are comfortable with the idea of even starting the task. Once they do, the inflows will likely swell over a period of years - much as occurred in the 1990s - not months. It is a little hard to remember back that far, but I vividly recall investors anticipating a 1987-style crash and double-dip recession from 1991-1994. They finally got a very slight recession in mid-'94, and it was only in 1995 that the meat of the 1990s bull market got underway. A similar scenario, with a different script, may be awaiting us in this decade.

The only caveat, and it's a big one, is that Europe and China are not cooperating with U.S. strength and could drag down Wall Street. We'll keep a close eye on this development to see whether this wrinkle develops into trouble.

Source : http://moneymorning.com/2010/05/06/retail-investors/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in