All-Time Highs: Are Investors Bailing Early?

By Derek Moore

Back in October we published an article illustrating how at the absolute market lows in 2009, investors continued selling out of equities and into record levels of money market funds. That year as markets recovered instead of getting back into stocks record fund flows went into bond funds. This resulted in investors missing out on substantial parts of the rebound rally.

Now with markets again around all-time highs, we see new evidence within a recent Wall Street Journal article that indicates investor funds are flowing into money market funds at the highest level since 2008. In addition, as you can also see on the graph above, bond funds as well as money market funds are seeing large inflows.

Stocks as displayed on another graph from the article below are seeing net outflows.

Source: WSJ Online

Its apparent that funds leaving stocks are flowing to money markets and bonds. Is this a contrarian indication that the markets can move higher? Long time readers know that we don’t look to call tops and bottoms or trade directionally. But it would seem like a lot of people by their fund choices are selling out and running or risk off assets.

Of course, calling a market top is difficult. So why do people do it? For one, they probably don’t have any type of reliable downside hedging strategy in place. If your hedged, you don’t need to try and time things. Just let the market go where it goes and participate in most of the upside while having a downside floor in the portfolio.

It will be interesting to look back a year form now and see where the markets ended up. But yes this might be a contrarian sign. So just be hedged!