by David Templeton, Horan Capital Advisors
Last week's mostly negative market, until the sharp recovery on Friday, continues to negatively influence investor's market sentiment. Last week's American Association of Individual Investors reported bullish investor sentiment fell slightly to 30.9%. This bullishness level is nearly nine percentage points below the long term average of 39%.
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Source: AAII
An interesting factor reported in the Sentiment Survey was the 7.1% increase in bearish sentiment to 38.2%. Much of the recent commentary seems centered around the fact the market (S&P 500 Index) has not experienced a 10%+ market correction in over 30 months. Factor in the number of geopolitical issues around the globe and the Fed's reduction of QE, it is no wonder investors have a less than favorable view of the market.
Fund flow data seems to be supportive of the fact investors are not overly bullish. The below chart shows fund flow data through June. Every month except for January of this year has seen positive investor flows into bond and income funds. June of this year witnessed the first outflow from equity mutual funds in over a year. This equity fund outflow continued in July as noted in the table following the monthly fund flow chart below.
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Source: Investment Company Institute
In spite of what seems like a near uninterrupted advance in the equity markets since the end of of the Great Recession, fund flow data does not suggest investors have reallocated out of bonds into stocks in any significant way. In looking at the below chart, it seems apparent the cumulative flow of funds into bond and income funds still far out weighs any recent positive flows into equity funds. As noted earlier, and this can be seen on the below chart, positive flows have returned to bond funds this year.
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Generally, market tops do not get realized until a capitulation, "all-in" type positive inflow into stocks occurs.
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