Investors suddenly seem to like stocks again.
After watching the market post double-digit returns last year—and with the Fiscal Cliff resolved for now—Americans are pouring billions of dollars into stocks.
Just over $22 billion flowed into long-term equity mutual funds and exchange-traded funds in the week ended Jan. 9, according to Bank of America Merrill Lynch. That was the second-highest amount on record after the $22.8 billion that went into all equity funds in September 2007.
"I have to take this as bullish," said Dennis Gartman, veteran author of the daily Gartman Letter. "Perhaps one gets a bit antsy when the public's in, but inflows are always better than net outflows and the public is still sitting on a mountain of cash or debt securities."
Some, however, believe it's too early to tell if this is really a trend.
"I'm a little skeptical," Art Cashin of UBS told CNBC on Friday. "I want to see if they continue." (Watch video above)
On Wall Street, the retail investor is often seen as the dumb money. As the thinking goes, by the time Main Street has caught onto a bullish or bearish trend, it's time for the so-called smart money – the professionals – to do the opposite.
Those days may be over, thanks to an index by TD Ameritrade being unveiled Tuesday.
Dan Loeb's Third Point was the clear hedge fund standout in a horrible year for the industry as almost nine out of 10 managers underperformed the S&P 500. Omega Advisors' Leon Cooperman also scored big.
Loeb — once better known for his acerbic letters to CEOs — used an activist position in Yahoo and the contrarian buying of Greek bonds to drive the firm's flagship fund to a 21 percent gain in 2012. The firm's more-leveraged Ultra fund posted an even bigger 34 percent return.
"Among his many talents, the one that I appreciate in Dan is his adaptability and ability to learn and evolve," said SkyBridge Capital's Anthony Scaramucci, who holds one of the largest gathering of hedge fund investors every year in Las Vegas. (Loeb is a speaker.) "This is the main reason in my mind why he has become one of the world's greatest investors."
Goldman Sachs strategists have issued a big warning to clients hiding out in bond funds: You're about to lose your shirt.
The reason: interest rates began rising this week, and if they return to the historical average yield of 3 percent, prices for long-term bonds will plummet. (By their very nature, fixed income prices must fall if rates rise.)
"A reversion of risk premiums to historical averages of 6% nominal rates (3% real rates and 3% inflation) would suggest estimated losses in portfolios with bond durations of 5 years of 25% or more," equity strategist Robert D. Boroujerdi said in a note.
The yield on the 10-year Treasury hit almost 2 percent this week–an 8-month high–after minutes from the Federal Reserve's last meeting showed several members believe the central bank's quantitative easing should end this year. (Read More: End of Stimulus? What's Behind the Fed's Surprise Statement)
From its humble beginnings in a speech by Ben Bernanke to its surge to the top of the American lexicon, the "fiscal cliff" was banished to the annals of history Wednesday to the delight of many of the populace bedeviled by the term.
But it wasn't just passage by Congress of a budget act Tuesday that put an end to our national nightmare, it was also the term taking the No. 1 slot in Lake Superior State University's annual list of banished words.
"Fiscal cliff" garnered the most nominations for this year's "List of Words to be Banished from the Queen's English for Misuse," which has been put out every New Year's Eve since 1975 by Michigan's smallest public university. Second on the list was the phrase "kick the can down the road."
While the risks can be large, sometimes the biggest paydays on Wall Street come from making a contrarian bet on the most hated sector on the planet. This was never truer than during 2012.
The housing sector, which brought the financial system to its knees in 2008 and continued to be an albatross around the middle class for the next three years, was the hottest trade this year as consumer confidence improved and as the Federal Reserve kept interest rates low. The central bank even went so far as to purchase mortgage-backed securities.
The iShares U.S. Home Construction ETF (ITB) surged more than 75 percent in 2012 as shares of homebuilders such as Pulte Homes and Lennar doubled or nearly doubled and construction-related stocks like Home Depot jumped. More complicated mortgage-backed securities were among the biggest winners for hedge funds brave enough to buy them.
"They took the painful writedowns and survived the hit," said Barry Ritholtz, CEO of Fusion IQ and author of The Big Picture blog. "And have you priced a mortgage lately? It's 3.25 percent for a 30-year fixed."
True to its function as a discounting mechanism, these stocks starting moving higher early on in the year in anticipation of a relatively sizeable increase in home prices.
It got there when prices climbed at a 4.3 percent annual rate in October, according to the latest seasonally-adjusted S&P/Case-Shiller 20-City Composite Index. That was higher than many economists predicted, but no surprise for buyers of these stocks.
"Since the businesses that were able to survive the home construction nuclear winter became so lean, they were highly leveraged to a pickup in business," said Mitchell Goldberg, president of ClientFirst Strategy. "The homebuilding sector was one of those stories that you knew it would turn around eventually, but it took a heck of a long time."
To be sure, the Home Construction ETF is down more than 60 percent from its high back in 2006. And during those days, home prices were posting double-digit annual gains on a monthly basis, according to S&P/Case-Shiller.
(Read More: Robert Shiller: Don't Await Housing Boom)
Many investors think the easy money has been made in this trade and there will be tough sledding ahead again for the sector as unemployment stays elevated and foreclosures pressure prices.
"A lot of people seem to think that if the market turns around, that means more of the same," said Professor Robert Shiller, Yale economist and co-creator of those very indexes, in an interview with CNBC this month. "We might see home prices go up a little bit above inflation, but it is not likely that we'll see a real boom."
So what's the most hated sector going into 2013? Going by ETF performance, it's natural gas with the U.S. Natural Gas Fund (UNG) down 27 percent in 2012. Feeling lucky?
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Bill Gross, the so-called bond king who oversees nearly $2 trillion at his firm Pimco, predicts unemployment may actually reverse course and rise next year. This bleak economic outlook will make for weak fixed income and stock returns and cause gold to go higher, Gross said.
The simple proclamation came as many do these days, via Twitter, on Sunday morning.
"2013 Fearless Forecasts: 1) Stocks & bonds return less than 5%. 2)Unemployment stays at 7.5% or higher 3) Gold goes up…," Gross wrote on the Pimco Twitter page.
Apple's stock is up Thursday, but the recent selloff may be far from over.
Extraordinary volume during the stock's plunge this fall signals another 20 percent decline is still ahead, a top chart analyst on Wall Street says. (Read more: Apple Defies 'Death Cross')
"Along with the two volume 'spikes' cited in my Nov. 16 note, yesterday (Wednesday) was another volume 'spike' day on the downside suggesting that the $528 support area will in fact be decisively broken on a closing basis over the near-term," said John Mendelson, technical analyst for ISI. "My view continues to be that because the stock ran up so fast last spring, the next significant support area is $420."
Technical analysts like Mendelson, who was ranked 19 times in that field by Institutional Investor magazine over his long career, often look at volume to gauge changes in supply and demand for a stock. In this case, because the heavy trading is occurring as Apple is falling, it may be signaling a mass, ongoing liquidation as the year comes to a close.
Apple fell 6 percent Wednesday to $538.79 for its worst one-day loss in four years. About 37 million shares changed hands yesterday, almost 70 percent more than the average daily volume for the stock. (Read More: 'A Real Conflict' for Apple Stock: Milunovich)
Mendelson is focusing on the $420 level because that is where the stock established a base, trading around that price for a few weeks at the beginning of January before taking off.
"Technical analysts follow spikes in volume because they often signal panic selling or panic buying," said Dennis Gartman of The Gartman Letter. "History shows that they often mark major turning points for stocks."
Darden Restaurants, owner of Red Lobster and Olive Garden, fears a backlash from customers angry about its efforts to convert more workers into part-time positions so it can avoid paying for their health care.
How concerned is the chain? So much so that the world's largest full-service restaurant company used a veiled reference to this possible boycott as partly to blame for its lowered 2013 forecast.
"Our outlook for the year also reflects the potential impact, though difficult to measure, of recent negative media coverage that focused on Darden within the full-service segment and how we might accommodate healthcare reform," said Clarence Otis, Darden CEO, in Tuesday's news release.
The company started running a test program to limit more workers' hours to under 30 per week in certain markets. This would lower costs for Darden in 2014, when the new health care bill will require companies to provide benefits to all full-time employees. (Read More: Prepping for Obamacare, Chain Cuts Workers' Hours)
Darden shares got slammed after it said earnings for 2013 would be as low as $3.29 a share. The consensus estimate among analysts was $3.88 EPS. (Read More: Wal-Mart Employees to Pay More for Health Care)
Many investors laughed off Darden's suggestion that the "media" would keep diners away next year as it takes step to skirt so-called Obamacare. They said a miss that big was due to structural problems facing the restaurant space.
"Costs at restaurants are set to continue to rise," said Brad Lamensdorf, manager of the Active Bear ETF (HDGE). "A rising minimum wage and rising costs of food inputs, especially organic, should keep pressure on restaurant margins for 2013."
The manager is short — or betting against — Chipotle (CMG) for these very reasons.
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