Mission Accomplished: Retail Piles In To Stocks As Pros Pile Out

With year-end target after year-end target having been met and raised by the oh-so-ethical sell-side strategists and asset-gatherers, it appears the Fed’s grand plan of dragging every bit of cash into the increasingly more risky equity markets is working. After a rally driven more by financial engineering that real sustainable growth, Bloomberg reports, individual investors are plowing money back into the U.S. stock market just as professional strategists say gains for this year are over. As one senior equity manager warned, “if Wall Street, after poring over all known data, comes up with a target and we’re already there, and you still see individual investors buying and they’re typically the ones that are late to the party, it would seem there is limited upside,” but that didn’t stop about $100 billion being added to equity mutual funds and exchange-traded funds in the past year, 10 times more than the previous 12 months. We have found this cycle’s greater fool and once again it is the retail investor.

As Bloomberg reports,

Individual investors are plowing money back into the U.S. stock market just as professional strategists say gains for this year are over. About $100 billion has been added to equity mutual funds and exchange-traded funds in the past year, 10 times more than the previous 12 months, according to data compiled by Bloomberg and the Investment Company Institute.

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While the strategists have a mixed record of being right, history shows the bull market has already lasted longer than average and individuals tend to pile in at the end of the rally.

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Professional investors, such as Nick Skiming of Ashburton Ltd., say that individuals investors are attracted to stocks after seeing others getting rich from a big rally, a time when equities are usually overpriced. The bursting of the technology bubble in March 2000 was marked by mutual funds absorbing a record $102 billion in the first quarter.

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“As institutional investors, we’re always concerned when the retail investor is actually arriving in the market,” Skiming, who helps manage $10 billion at Ashburton, said by telephone from Jersey, the Channel Islands. “The retail investor arrives when they can only see blue skies.”

But of course, there are plenty that need to earn their commish and will keep talking…

“This is a durable and sustainable bull market,” Laszlo Birinyi said in a July 9 phone interview from Westport, Connecticut. “It’s going to surprise us because I still don’t think we’ve got to a point where water is boiling yet.”

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“To the extent that investors start to put a lot of money into the market, it would certainly be late,” Todd said in a July 9 phone interview from Greenwood, South Carolina. “But to say that the end is going to happen in the next few months, I don’t agree with that.”

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It’s never different this time… and as a gentle reminder, this story has been ongoing…