Dow hits 14,000 — so where's the great rotation?

Bond fund still reporting net inflows; dash out of cash

Feb 1, 2013 @ 3:25 pm

By Jason Kephart

Stock market, bonds, stocks, Dow Jones Industrials
+ Zoom
Suddenly, this is where the action in ((Photo: Bloomberg News))

Investors fell back in love with the cult of equities in January. The long-predicted rotation from bonds to stocks, however, hasn't kicked in yet.

Stock mutual funds had approximately $41 billion in inflows in January, research firm Strategic Insight estimates. That's a sharp turnaround from the $23 billion investors withdrew in December and the $100-plus billion they withdrew during the entire calendar year.

The change in attitude toward stock funds has been attributed to a number of factors, including the “January effect” of selling for tax reasons in December then reinvesting in January. Retail investors finally seem to be catching word of the stock market rally of the past few years, as well. With the Dow Jones Industrial Average topping 14,000 for the first time since October 2007, it's a fair bet that word-of-mouth will only grow.

“The real psychological impact will come when everyone screams stocks are at a new all-time high, which we're not far from,” said Bob Doll, chief equity strategist at Nuveen Asset Management LLC. The Dow's all-time high is 14,164.

The money being funneled into stock funds hasn't been diverted from bond funds, though, as many had predicted. In fact, bond funds had $41 billion in inflows in January, according to Strategic Insight, much higher than the $27 billion in inflows bond funds averaged monthly last year.

Indeed, the big loser in this great re-balancing act appears to be banks. More than $114 billion was pulled out of bank deposits the first week of the year, the biggest single week of withdrawals since 9/11, according to Bloomberg. Another $30 billion was pulled out of retail money market accounts in January, according to the Investment Company Institute.

“People are getting tired of earning zero on their cash,” Mr. Doll said.

The reason people haven't started rotating out of bonds, which have had more than $1 trillion in inflows since 2008, is because there's still some uncertainty around the health of the economy, said Jeff Rosenberg, chief investment strategist for fixed income at BlackRock Inc. Fourth-quarter growth domestic product unexpectedly retracted, and the unemployment rate ticked up to 7.8% on Friday.

Manufacturing, meanwhile, seems to be rebounding. The Institute for Supply Management index rose to 53.1%, from 50.2% in December, beating analysts' expectations Friday. When the index is over 50%, it shows that manufacturing is expanding.

0
Comments

What do you think?

View comments

Recommended for you

Latest news & opinion

Jay Clayton says SEC, DOL can give market 'clarity' on fiduciary rule

Chief regulator is confident two agencies could reach 'common ground' on an investment advice standard across all accounts.

Sen. Gary Peters brings broker background to work every day on Capitol Hill

Michigan Democrat resists ripping up DOL fiduciary rule but would be open to some changes.

DOL fiduciary rule causing DC-plan record keepers to change business with insurance agents

Principal has communicated that independent agents must change their business models to keep receiving compensation.

DOL fiduciary rule opponents want to push implementation back until 2019

ICI, Chamber of Commerce among groups asking for delay, while Democratic lawmakers call on DOL to keep to its earlier planned schedule of Jan. 1, 2018.

Tech companies deploy behavioral finance tools for advisers

They seek to turn knowing more about clients into growing more revenue.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print