TrimTabs is estimating U.S. equity mutual funds saw INFLOWS of $759 million in the past week. Why is this significant? That would be the first time in essentially 6 months that inflows have gone into U.S. equity mutual funds, which are largely owned by retail/individual investors.
In other words, ever since the Flash Crash occurred back on May 6, U.S. equity mutual funds have seen outflows every single week.
While the retail investor has stayed away from the markets for much of the last 2 to 3 years (following the 2008 Financial Crisis), the events from the Flash Crash didn’t help spark any more enthusiasm for stocks. After being spooked by the events of May 6, the retail investor has continued to sit on the sidelines throughout most of the summer and fall.
That comes even as professional traders have re-entered the market and have participated in the recent rally using exchange-traded funds (ETFs). Unlike their mutual fund counterparts, U.S. equity ETFs have seen weekly inflows for much of the past 5+ months.
Of course one week of U.S. equity mutual inflows is far from a trend and provides no certainty that the retail investor is back and here to stay. But even at a small amount of inflows, this week’s data point is a first step—and potentially a positive sign given the negative trend since April/May.
However, some fear that retail investors could make a mistake by re-entering a stock market that now (as some would argue) has more downside risk, with stocks currently sitting essentially at 2-year highs even when the economic outlook remains uncertain. They point out, the retail investor has already missed the significant run-up in stocks over the past 2 months (S&P 500 up 13 percent since August 30), and that the individual investor can’t afford to participate in another market downturn.
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