Friday, July 10, 2020

Mutual Fund And ETF Flows Don't Favor Stocks

As is said from time to time, a picture is worth a thousand words and one simply needs to look at mutual fund and ETF flows to see the truth behind the statement. Investors' actions indicate stocks have not been at the top of their buying list for a year and a half. As the top two panels in the below chart show, cumulative mutual fund and ETF flows for stocks have been decidedly negative for a year and a half.

Weekly flows are showing the same picture, but not as clearly for domestic equities

Aside from bonds taking in cash, the other beneficiary of flows has been money market cash which now equals almost $4.7 trillion, a level higher than reach at the peak of the financial crisis. Over the last month or so, money market cash has drifted lower, possibly into bond investments and/or diverted to tax payments with the IRS tax deadline of July 15. 

Flows are an indication of investor sentiment, and with sentiment measures being contrarian ones, investors currently seem skeptical of stocks. Earnings reporting season for the second quarter gets underway next week and weak earnings are mostly expected for Q2 due to the virus mandated shutdowns last quarter. Appropriately, most of investor attention will be directed towards corporate earnings guidance.

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