Investors are pulling a steady stream of money from the U.S. stock market, the latest sentiment shift to cause unease among market bulls.
Mutual funds and exchange-traded funds that invest in U.S. equities marked their 10th consecutive week of net outflows during the seven days ended Wednesday, good for the longest such streak in 13 years, according to Bank of America Merrill Lynch data.
The $2.6 billion pulled from U.S. equity funds in the latest week helped push withdrawals to $30 billion since late June, per Bank of America. Data provider EPFR found that the outflows were concentrated most heavily in actively managed funds, as The Wall Street Journal’s Morning MoneyBeat newsletter notes.
The steady stream of withdrawals adds to concerns about a bull market that looks expensive by many measures. The S&P 500, which is up 9.1% this year to close at 2443 Friday, trades at a far-above-average ratio to the next twelve months of expected earnings.
Other indicators recently have also signaled caution, such as a decline in the number of U.S. stocks that are hitting new highs along with the broader market. Dow transports, traditionally thought to rise and fall with the economy, have been on a downtrend, lagging their peers in the Dow industrials. Those and other technical factors have some predicting more turbulence ahead.
“If historical precedent applies, the S&P 500 is set for about a ~4%-5% decline in the next month towards 2,300 or so,” said Thomas Lee, the managing partner at Fundstrat Global Advisors, in a Friday note to clients.
Many investors say the focus is on Washington, where President Donald Trump has yet to make substantial progress on policy proposals perceived to be business friendly, like tax-code reforms and infrastructure efforts. Expectations of such programs helped lift the stock market after the November election.
Before it can tackle the tax code, Congress must wade into a set of thorny discussions over lifting the debt ceiling and passing a spending bill, which could ripple through the stock market if they come down to the wire.
Given those uncertainties, it’s no surprise that investors have been hotter on international stocks, which have been boosted by an updraft in global growth. In the latest week, they put $3.1 billion into Japanese equity funds, the biggest inflow in five months, according to Bank of America. European equity funds had six straight weeks of inflows through mid August, though they experienced $200 million in outflows in the most recent week.
Still, it’s worth remembering that investors, stung by losses during the financial crisis, have been hesitant to put money into U.S. stocks for much of the bull market that began in early 2009. That hasn’t stopped the market from plowing higher anyway.
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