Fund Flow

After wavering in neutral several weeks, Major Trend Index turned negative November 24...Go to sidelines. Market rallied strongly in November but fund investors uncharacteristically stayed on the sidelines. Is this increased caution or seasonality?

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Among the industrial nations, U.S. bond market offers highest yields, a reversal from earlier in the decade. Inflation outlook positive.

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The big volatility week at the end of October didn’t seem to cause much panic among fund buyers (maybe it was good they couldn’t get through on Monday). We are guessing the sustained strong net inflows will bounce back strongly.

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Major Trend Index downshifts to neutral. Big loss in Technical measures due to late October sell off. We are in a critical market period...Have Mr. And Ms. Main-Street become more skittish after experiencing a dose of downside risk?

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Among the industrial nations, U.S. bond market offers highest yields, a reversal from earlier in the decade...A return to “normalcy” implies falling US bond yields.

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Small caps continued to outperform in September’s strong market. Improving small cap earnings and sales momentum. Improving sponsorship (so far) from aggressive and emerging net fund inflows.

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After two weeks of net outflows in August, the public returned to the mutual fund trough in September.

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Index fund net inflows remained low in September at about $1.1 billion (estimated). This is almost flat compared to the $1.2 billion in August.

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In August, there were two weeks of net outflows from U.S. focus equity funds, the most recent was so small it hardly shows up on the chart.

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Doubtful, at this point. Relative performance “catch up” not conclusive...Abnormal downdraft in large caps a big contributing factor.

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Bond risk still considered well below potential equity market risk...longer term, bond potential returns at least equal to potential equity returns.

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How long can the Goldilocks’ economy keep going? The current economic expansion (at 25 quarters) is long in the tooth by historical standards. Inflation outlook improved. Shortage of treasury bonds to become a reality?

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For July, our estimate is that $18 billion flowed into U.S. focus equity funds. This would be the largest monthly inflow since January 1997, and far more than last July’s depressed $3.7 billion.

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Fed may tighten later in the year to slow down economy. Inflation cool, but wage pressures a worry. U.S. rates very competitive with foreign yields.

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There has been a declining trend in weekly inflows since early January. The strongest seasonal flows are in the first 3 1/2 months of a year (through April 15). 1997’s strongest inflows may now be history.

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ICI reported April net inflows at $10.6 billion, down considerably from January and February but up from March.

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Economic expansion long in the tooth...Fed working to slow down the economy...Inflation cool...U.S. rates very competitive with foreign yields...strong dollar should continue to stimulate foreign bond buying.

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Mutual fund investors less enthusiastic as they learn stock market is not a one way street. Mutual fund investor speculation monitor remains at low levels.

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Index fund assets approaching $78 billion, 6% of U.S. focus fund assets... Year to date, index fund flows now account for about 14% of domestic total.

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Impressive rally did not alter Negative status of Major Trend Index. S&P 500 beat 90% of sectors in April. Earnings holding up well in Q1, but margins likely to shrink as the year progresses.

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