Will Individual Investors Continue To Get The Market Direction Right?

One thing investors experienced and seemed to have learned was their mistake of piling into the stock market at the top of the technology bubble in 2000. As the below graph indicates, investors allocated significant dollars to equities, based on monthly mutual fund flows, just prior to the technology bubble bursting in early 2000. However, since that time, investors seem to be timing their market moves correctly. At the bottom of the tech bubble in 2002, investors began investing funds into equity mutual funds fairly steadily up until 2008. At the top of the market in 2008, just prior to the financial crisis that impacted the market in 2008-2009, investors began pulling funds from equities and subsequently reinvesting in stocks at the end of the recession.

From The Blog of HORAN Capital Advisors

However, since mid-2010 the S&P 500 Index is up nearly 35% and investor flows into equity mutual funds have actually been negative. They seem to sense a better opportunity in bonds. Not that bonds haven't delivered reasonable returns, but bond returns have trailed returns for the broader equity market over the most recent 2-year time period.

From The Blog of HORAN Capital Advisors

As the above two charts indicate, investors have not warmed up to equities over the last two years. There are many reasons why, volatility, euro zone issues, issues in Washington, DC, etc., but, will they be proven correct this time? The equity markets do seem to be climbing that proverbial wall of worry and maybe pessimism about the markets is overdone to the downside vis-à-vis fundamentals.