Money rushes into US stocks at fastest pace this year

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U.S. equity mutual funds and exchange traded funds (ETFs) have received $27 billion so far in July, the fastest rate of inflows this year, according to research firm TrimTabs,.

Those inflows have helped push the S&P 500 and Dow to fresh record highs and led some strategists to forecast further gains for U.S. stocks this year.

Sam Stovall, chief equity strategist at S&P Capital IQ, said U.S. equities were likely to perform just as well in the second half of the year as they did in the first half.

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Earlier this week, Dennis Gartman, founder and editor of The Gartman Letter said he expected further gains after the recent correction in equities.

"I think we're likely to see newer highs in the not too distant future," Gartman told CNBC on Monday.

According to TrimTabs, $6.6 billion has flowed into U.S. equity mutual funds this month, while $20.4 billion has flowed into U.S. equity ETFs. On Friday, July 12 alone, inflows into U.S. equity ETFs hit $7.8 billion, the biggest daily inflow this year.

Sean Darby, chief global equity strategist at Jefferies, told CNBC on Wednesday, he expects the S&P 500 to rise a further 3.5 percent to 1,735 by the end of the year because a steepening yield curve (the difference between short-term and long-term borrowing costs) is positive for stocks, particularly banks.

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"I think what you're seeing now in the performance of U.S. financials is indicative that we're probably going to see quite a strong credit cycle in the U.S. which is generally very good for equities," Darby said.

The S&P 500 has risen 17.5 percent since the start of 2013, making it among the top performers globally this year and Darby believes U.S. equities are fairly valued and companies are flush with cash.

"They have got too much money and they don't necessarily know what to do with it. I don't think we've got any signs of financial distress or balance sheet issues that will suggest that equities are going to trade on the weak side," he said.

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Darby said his preference among U.S. equities lies in small caps, citing their lower exposure to slowing global growth, with less than 20 percent of their revenue generated from overseas. The Russell 2000 index, which measures the performance of small cap companies, has risen over 22 percent year-to-date.

David Dietze, chief investment strategist at Point View Wealth Management, however, sounded a word of caution on the outlook for U.S. equities.

"When you look at the fixed income market, they have already priced in [tapering] before the end of the year, fixed income is very nervous. On the other hand, stock markets are back to all-time highs. It seems like the equity market is saying no problem here," Dietze said.

"With earnings slowing dramatically and the risk of tapering, you have got to be at the edge of your chair in terms of equity investing."

By CNBC's Ansuya Harjani