In the middle of a classic bull run, investors yanked money out of equity mutual funds.
A whole lot of good news has come out this week. But one data point stood out above all others — one suggesting that investors are still leery about the stock market.
As the Dow Jones Industrial Average was touching record highs, the Investment Company Institute reported that investors pulled more than $1 billion out of U.S. stock funds in the one-week period through Feb. 27. That about-face broke a streak of seven straight weeks of inflows.
The streak, and the sheer amount of money flowing into the funds, seemed to indicate that investors were finally ready to embrace the bull market as it entered its fifth year. In January alone, U.S. stock funds took in $18.5 billion in inflows, the most in a single month since 2004.
So what was the snag last week?
Volatility. After months of relative calm in the market, volatility made a surprise appearance courtesy of the Italian election. The gyrations clearly spooked investors.
The Chicago Board Options Exchange Market Volatility Index, otherwise known as the Vix, jumped 34% after the election result signaled that the troubles in Europe are a long way from over. It was the biggest one day move for the index, which measures implied volatility over the next 30 days, since the debt ceiling fiasco of August 2011.
The Feb. 24-25 election results in Italy also sent shock waves through stocks and bonds. The S&P 500 on Feb. 25 fell 1.83%, its biggest one-day drop since November, while the 10-year Treasury's yield fell 9 basis points to 1.88%. That marked the benchmark's biggest one-day move of the year.
While the S&P 500 regained its losses by the end of the week, the plunge was a harsh reminder that even though things have been going well, the headline risks from the past three years haven't been solved magically.
The markets have continued marching on since the one-day bump. It will be fascinating to see if investor flows mimic the market's ups and downs — or if investors start to get dug in for the long haul.
In the meantime, we'll try to stay mindful of perhaps the best advice we've heard about the current bull run — guidance offered by Diahann Lassus, president of Lassus Wherley & Associates PC.
“What we try to keep people focused on," she said, "is when something is doing really well, it's just as much of a trigger to review where you are as when something's not doing well.”
Amen to that.
