Dreaming of a Multiyear Bull Market

The current circumstances in the U.S. stock market remind me of one of my favorite bands from college, Supertramp, and its song, Nothing But a Dreamer. It appears that individual investors and many of the financial advisers who take care of them have their "head in their hands, oh no!" This was pointed out to us in one of Mark Hulbert's columns in The New York Times on Nov. 8, and in a piece on Nov. 12 by Hays Advisory's Mark Dodson.

Hulbert's column explained that the lack of buying interest, in fact, recent net selling, of U.S. equity mutual funds and exchange-traded funds could be useful as a short-term contrarian indicator, but is disconcerting from the standpoint of his long-term view of the market. His research, assisted by Ned Davis's research, concludes that this bull market must see net inflows into equity funds and ETFs at some point to be anything more than the bounce-back rally from the steep decline of October 2007 to March 2009. The research showed that the stock market generally performs better after inflows into equity funds.

In his missive, Dodson calls stocks "Public Enemy No. 1." His charts show that we had fund flows in October (bond flows compared to stock flows) similar to the bear market lows of 2002-2003. Combined with the continued steepness of the yield curve, his research shows that any little pullback in the stock market sends many investors scurrying for the exits because "now they've got their head in their hands, oh no!"