Investors Fleeing Stocks in Longest-Running Streak Since 2004

 new york stock exchange

As the financial press reported, U.S. stocks continue to inch forward or hold steady. Stock market indices opened with trading in positive territory, even as Hurricane Harvey affected refineries and other energy facilities. But while the market showed positive trends, it was a report, published last week by Bank of America Merrill Lynch (BoAML), which caught the eye of many.

On Thursday, August 24, BoAML reported investors have been fleeing stocks in a frenzy that hadn’t been seen for years. According to Evelyn Cheng with CNBC, investors had pulled an estimated $30 billion from U.S. stock funds over the past 10 weeks. That added up to the longest stock outflow streak since 2004.

The 10-week strain of withdrawals occurred despite market highlights, including a 1% gain by the S&P 500 for the quarter.  Contrastingly, Cheng noted that foreign markets posted strong inflow gains. European stocks, Japanese stocks, and emerging markets saw inflows of $36 billion over the last 10 weeks.

What are Some Highlights?

According to BoAML, major contributors to recent stock gains saw considerable outflows:

  • Technology stocks saw outflows of $600 million, the largest then in 49 weeks
  • Financial stocks experienced withdrawals of $35 million
  • Consumer stocks had withdrawals of $1.5 billion, the third-largest outflow ever

Trends of historical consecutive stock outflows, going back to 2004, can be seen in the graph below. This graph comes from the BoAML Global Investment Strategy, and data from EPFR Global.

bank of america merrill lynch global investment strategy
Source: CNBC, Originally from BofA Merrill Lynch Global Investment Strategy, EPFR Global.

The BoAML report also noted that investors had withdrawn $1.6 billion from U.S. growth stock funds and $1.1 billion from U.S. value stock funds. U.S. Treasury bonds also saw significant investment, with inflows of $900 billion. That was their greatest inflow for 10 weeks.

Yet even as pundits and experts differ over the market's direction, they say to exercise caution. Bank of America Merill Lynch reported that its Bull & Bear indicator didn't show any signals of selling. And the finances of wealthy clients of BoAML didn't show a mass migration into precious metals as a proportion of their overall asset allocation.

Different financial columns also expressed how this market activity has differed from that in the past. Take, for example, the opining of Forbes contributor John S. Tobey. As Tobey observes, the market crash of 1987 arose in a wave of investor optimism and confidence. On the other hand, the current market activity has been marked by investor frustrations and concerns.

Nevertheless, investor opinions indicate the belief that the market is overvalued. A strong majority of investors were found to have this belief in a recent survey by Northern Trust Asset Management. In a July 21 article, MarketWatch author Ryan Vlastelica noted that over 6 in 10 investors -- 65% of those surveyed -- said the market is overvalued. That was the highest proportion of investor assessments of market overvaluation in the survey's history. However, 36% of investment managers surveyed found the market undervalued or valued fairly at that point.

Still, as pundits and experts opined earlier this year, analysts said in July that a market correction could be ahead. Global financial strategists at Citigroup pointed to the possibility of rising interest rates as a potential driver for a down-trending market. That could important given that the Fed recently committed to a more gradual rate hike agenda, which started in March.

Takeaways for Retired and To-Be-Retired Households

As investors take a more defensive position against market volatility, you may be considering options. If you are in the "retirement red zone," or 10 years before retirement or into retirement, you might evaluate different wealth preservation strategies. When they transition to retirement, many people no longer have a full-time salary or other forms of substantial earned income for household cash-flow.

Planning for this period should consider strategies to preserve life savings and accumulated assets. For those particularly concerned about market losses, the concept of "safe money" especially applies. You might want to look into different financial vehicles, backed by strong guarantees, to protect the money you can't afford to lose.

As you plan for your retirement future, a knowledgeable financial professional can help you achieve your goals.

Ready for Personal Guidance?

Your retirement plan should include how you will satisfy your monthly income and cash-flow needs. Should you be ready for personal attention, a financial professional at can guide you.

Use our "Find a Financial Professional" section to connect with someone directly. And should you need a personal referral, call us at 877.476.9723.

Author: Ian

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