THIS Might Get Investors Interested in Stocks

Will retail investors ever start putting money into the stock market? There's been only modest indications of positive flows into U.S. equity funds this quarter, even with stocks at multiyear highs.

What might help: when investors get their quarterly returns in a few weeks and see they have lost money in bonds. The Barclays Aggregate Bond Fund, likely the largest bond fund in the U.S., is down 0.8 percent this quarter, a rare quarterly decline. The S&P 500, on the other hand, is up nearly 11 percent, one of its best performances in years.

We'll see if this makes a difference!

So how serious is the "China slowing" story? Five months in a row where the PMI is below 50 (contraction): that's the main argument that the "China slowing" story has legs.

One big problem: the Chinese are not giving investors what they want. Rate cuts.

China has made it clear that real estate is still too hot and they are not reducing rates, even though they are reducing the reserve requirements that banks must hold. In theory, this should make banks make it easier to make loans, but the markets put much more psychological weight on actual rate cuts than more abstract reserve requirements.

The Chinese seem to be signaling — at least for the moment — that they are more afraid of real estate speculation than slower growth.

For the last couple days, this has had negative implications for the Brazils, Australias, and Canadas of the world, which have more exposure to energy, mining, and commodities.

On the other hand, U.S. companies with relative strong exposure to the U.S. markets — the Costcos , Hersheys and Pepsis of the world — have held up better.

There's one other issue: the markets have been overplaying the Iran supply risk and underplaying the China slowing risk.

Most analysts believe there is a $15-$20 premium in oil as a result of Iran, but "China slowing" means demand concerns are chipping away at the geopolitical risk premium in oil and oil stocks. That’s why energy stocks have been the biggest decliners this week.

Bookmark CNBC Data Pages:


Want updates whenever a Trader Talk blog is filed? Follow me on Twitter:

Questions? Comments?