Forwardfinancialplanning Blog

More evidence that “others are fearful” January 2, 2012

Our December 14 posting suggested that “others” may becoming “fearful” as evidenced by mutual fund flows.  This trend was reinforced recently as the Investment Company Institute reported that long term mutual funds experienced outflows of $1.98 billion for the week ended December 21.  Equity mutual funds had net outflows of $4.57 billion with $2.69 billion exiting domestic stock mutual funds and $1.88 billion leaving non-US equity mutual funds. Net inflows into bond, and balanced mutual funds reduced the overall outflows to the $1.98 billion total (money market funds are excluded from the “long term” fund totals).

These continued equity fund outflows come at a time when stocks are seemingly becoming “less expensive”.  As of the final week of the year, the trailing P/E ratio of the S & P 500 had fallen to 14.48 compared to 18.05 a year ago.  Likewise, the equivalent statistics for the P/E based on forecasted 2012 earnings is currently 12.58 versus 14.56 a year earlier.  Clearly, this year’s volatility has made investors less enamored with the stock market.

A famous 1980 Time Magazine cover story entitled “The Death of Equities” ushered in an unprecedented 20 year bull market.  As people become increasingly disenchanted with the gyrations of the stock market, we may want to keep our eyes on the newstand headlines………………………..