US market exodus from bonds? Not yet

Mar 23 2013, 16:20 IST
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US market exodus from bonds? Not yet. (Reuters) US market exodus from bonds? Not yet. (Reuters)
SummaryThe expectations of a big exodus from bonds are way overblown, says David Santschi.

bonds has come out of money-market funds. About $32 billion has been pulled out of money funds this month, according to EPFR Global.

Withdrawals that didn't go directly into stock or bond mutual funds could have gone into bank accounts, covered daily expenses or been used for other needs. Investors also could have used the money to buys stocks or bonds directly rather than through funds.

If the money keeps flowing, this would be the first year since 2006 that more cash was invested in U.S. stock funds than withdrawn from them, according to Strategic Insight

Pension funds, 401(k) retirement plans and other institutional investors are typically the largest contributors to daily stock fund flows. But individuals also have been moving in recently, according to EPFR Global.

The market's gains over the past four years could have been larger, had individuals been investing more in stock mutual funds. In the run-up, much of the buying has come from companies repurchasing their own stock. Companies in the S&P 500 have bought $1.5 trillion since the Great Recession began in December 2007.

Hedge funds, foreign investors and others who don't own mutual funds bought as well. ETFs have also attracted cash, helping to support the rising market.There is more fuel for stocks to continue soaring. Dividend payments are headed for a record year and companies keep buying back stock. Boards approved $118 billion in buybacks last month, the largest single-month total ever, according to research firm Birinyi Associates.

Richard Peterson, a psychiatrist and founder of Market Psych, which advises banks and big money managers, says news coverage of the Dow's run is likely luring people who had remained wary of stocks since the financial crisis in 2008. One fear gets replaced with another.

It's the fear of missing out on a good thing, he says. People are watching it go up without them. Matthew Lemieux, an analyst with fund tracker Lipper Inc., warns that the increased investment in stock mutual funds doesn't mean the Great Rotation is coming.

At the beginning of 2011, stock funds attracted cash four months in a row, the strongest start to a year since 2006. But the cash began to dry up in the spring and summer. Investors worried about the debt crisis in Europe and a fight between Congress and the White House over raising the government's borrowing limit.

Stocks have pulled back slightly over the past week amid renewed concerns about Europe and

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