David Rosenberg, a long-time Wall Street strategist, declared that this generation’s obsession with stocks is officially over after equity funds suffered their biggest outflow in two years.
The “equity cult is clearly over,” wrote Rosenberg, chief economist and strategist for Gluskin Sheff, in a note to clients Monday. “The secular shift in investor behavior towards income-generation continues apace.”
Investors pulled $11.5 billion out of domestic equity funds (mutual and exchange-traded) for the week ended July 25, while putting $3.1 billion into taxable bond funds, according to Lipper, a Thomson Reuters unit.
“A lot of my clients feel that way,” said James Lebenthal, president of equities for Lebenthal Asset Management. “Twelve years of zero price appreciation in the S&P 500 is quoted a lot.”
But this latest socking move comes as the benchmark for bonds — the U.S. 10-year yield —fell to a record low of 1.38 percent on July 25th and stocks crept higher, bringing the S&P 500’s gain for the year to 10 percent.
It raises the question: if a stock rally happens and no retail investor is there to buy it, does that mean it’s not for real?
“The macro takeaway: the cult of equities was far more about demographics than markets,” said Steve Cortes of Veracruz Research and ETFLadder.com. “The 1982-2000 rally was based on bulging Boomers, and now we see the inverse.”
Volume for the equity market has been below-average this year as retail investors failed to embrace stocks as an asset class. Electronic trading by computer programs may account for up to 70 percent of the NYSE daily volume, according to some analysts.
Despite his declaration, Rosenberg doesn’t totally discount an investment in funds that put some money in equities.
“For those who are willing to dip some toes into the equity risk pool and get paid a rent while they await the next bull run, hybrids (income equity) took in a solid $586 million of fresh inflow last week,” wrote Rosenberg, who made his name for his unusually contrarian positions while economist at Merrill Lynch.
Still, the strategist believes corporate bonds are a much better bet right now from a risk-reward standpoint.
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