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

Sponsored financial news

Featured video

Events

Orion's Eric Clarke: What's new at Fuse 2017

Gadget Girl is back on the scene at Fuse with Orion's CEO, Eric Clarke. A new year means new themes and new fintech entrants. Find out what has Orion excited.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Video Spotlight

Path to growth

Video Spotlight

Path to growth

Latest news & opinion

What not to say to clients when the markets drop

Here's what advisers should steer clear of saying the next time stocks turn downward.

SEC bars former rep for alleged share price manipulation

George Thoreson tried to keep penny stock's price high to enable Nasdaq listing.

Nevada fiduciary law raises concerns among retirement professionals, brokerage industry

Critics complain that it conflicts with ERISA and SEC rules and has potential to spur other states to pass their own version of a fiduciary rule.

A special need for financial advice

Advisers don't have to be experts to help special needs families get a jump on lifelong planning.

Broker-dealers and RIAs at loggerheads over fiduciary rule delay

Companies and groups weighing in with comment letters have vastly different viewpoints on the delay's potential impact.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print