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'Plenty of life' in the Great Rotation: TrimTabs

Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

The recent gains in the stock markets, which has seen the S&P 500 clock gains of 27 percent year-to-date, could push even higher, according to research firm TrimTabs, who see investors continuing to ditch bonds for equities.

The U.S.-based company, which analyses data from U.S. equity mutual funds and exchange-traded funds (ETFs), said in a report released on Sunday that sentiment remained "positive" for the intermediate term with demand indicators suggesting that "the U.S. stock market uptrend has plenty of life left in it."

"We advise investors and traders with a longer-term outlook to keep buying any dips, " TrimTabs Chief Executive David Santschi said in the report.

(Read More: Nobel Prize winner warns of US stock market bubble)

The data also suggests that a "great rotation" out of bonds and into equities has started, he added, with investors shunning savings deposits and opting to instead for equity funds.

"Many market strategists have long anticipated a 'great rotation' into equities from cash and fixed income. The latest data suggests such a rotation is finally getting underway. Not only are bond fund outflows accompanying equity fund inflows, but inflows into savings deposits are declining," Santschi said

Talk of a shift away from bonds into equities started in earnest in January. Analysts cited the U.S. Federal Reserve's bond-buying program as the reason for the equity rally, with record-low interest rates on Treasurys pushing some investors into riskier assets - like equities - in search of a higher yield.

Bond funds saw record redemptions in June of $69 billion, according to TrimTabs data, as the central bank signaled that it could look to moderate its bond-buying. TrimTabs latest data now suggests that the trend has continued with $23 billion in outflows so far in December, coinciding with the Fed's decision to finally "taper".

(Read More: Investors poured $31.6 billion into equity funds in November:TrimTabs)

Redemptions in December are already the third-highest outflows this year, it said, and the seventh consecutive month of outflows.

However, Trim Tabs' forecasts have come under recent scrutiny. In Sunday's report, it admitted that it was "wrong" in forecasting that the Federal Reserve would not announce a reduction in money printing this month – only for the Fed to announce a $10 billion cut in its bond purchases last week. It also previously predicted a jobs number of just 23,000 positions added or July, when in reality the figure came in at 162,000.

One caveat TrimTabs give for their prediction that equities will fly higher, is that a short-term correction could be round the corner. Contrarian analysis of exchange traded fund flows suggest stock prices could pull back over the short term, it said. Leverage ETF investors, which use financial derivatives to amplify the returns, have seen the biggest outflows of short positions in ten weeks, it added, with more and more investors expecting the market to push higher.

(Read More: Stand by…a hefty drop's on the way: Nomura's Janjuah)

This contrarian view adds to a series of voices last week that were growing ever fearful of the market rally. Paul Gambles, managing partner at advisory firm MBMG International told CNBC Friday investors would be very brave to "chase the rally".

Sandy Jadeja, chief market strategist at SignalPro told CNBC Friday he was concerned going into 2014 and predicted a very sharp sell-off. Meanwhile, even high profile economists are remaining cautious, with Nobel Prize winner Robert Shiller saying in early December that a sharp rise in U.S. equity prices could be leading to a dangerous bubble.

CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81

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