Investors Are Returning To Stocks Is That A Good Thing?
Last week, I wrote about how the VIX index was signaling how investor confidence is on the rise. Basically, low volatility in options means investors arent loading up on downside protection. In other words, theyre not as worried about a huge market selloff.
Turns out, the VIX isnt the only metric proving investors confidence is on the rise.
Check this out
In the week ending January 9th, a little over $22 billion flowed into equity mutual funds and ETFs. Thats the second highest amount on record!
The only time theres been a higher amount of inflows was in September 2007, to the tune of $22.8 billion.
Okay, so September 2007 was right before the market peaked and then sold off in remarkable fashion. And, many investors believe fund inflows are a contrarian indicator. So should we be worried about the stock market with all the money pouring in?
In this case, I dont believe theres reason to be concerned. In fact, I think its a positive sign.
Heres why
In 2007, investor confidence was much higher and significantly more money was invested in stocks. Plus, many investors were ignoring the serious issues in the real estate market.
This time around, investor confidence is still low on a historical basis. Theres still a ton of money on the sidelines. And most importantly, the macro environment is improving.
As a matter of fact, we just got past a major hurdle in the fiscal cliff. Now, theres still the looming debt ceiling debate which has the potential to derail the economic recovery. But, theres time left to resolve that issue before it has a major impact on stocks.
What Im essentially saying is that there isnt enough irrational exuberance going around for investors to be overly concerned about the huge inflows into funds. Most likely, its a consequence of dividend and capital gains taxes not increasing in 2013 for most families.
Whats more, even veteran investment guru Dennis Gartman feels these inflows are bullish. And as Gartman says, inflows are always better than net outflows.
Heres the bottom line
Volatility is low, investors are returning to stocks, and the economy is improving. If the politicians dont get in the way, there could be a good chance that 2013 will be a very good year for stock investors.
Keep in mind, there will be short-term pullbacks it happens even during the most robust bull market. But, were nowhere near a period where investors should be considering running for the hills.
Yours in profit,
Gordon Lewis
Category: Investing in Penny Stocks
