This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Market Preview: Hating the Rally

NEW YORK ( TheStreet) -- One of the anomalies of the strong overall performance of stocks in 2012 has been skepticism seen in fund flows.

Consider this: even as the S&P 500 reclaimed 1400 last week, putting an exclamation point on the surge in equities since early June, the news came down that investors yanked a whopping $5.68 billion out of mutual funds investing in U.S. stocks during the week ended Aug. 1, according to the Investment Company Institute.

The outflow was the fourth in the past five weeks, bringing the total over that stretch to $12.44 billion vs. a paltry inflow of $95 million during the week ended July 18. Over the same five-week period, mutual funds investing in bonds saw total inflows of $25.02 billion. Year-to-date, U.S. stock funds have seen an exodus of more than $60 billion.

Brian Belski, chief investment strategist at BMO Capital Markets, weighed in on the situation early Monday, calling the latest melt-up in stocks "one of the most loathed market rallies in our collective careers" and saying investors may ultimately rue being so cautious.

"With near zero interest rates we believe investors are unknowingly putting their portfolios at risk under the façade of capital preservation," he wrote. "As a result, we would urge investors to take a more disciplined investment approach and recognize that certain historical and fundamental trends appear to favor stocks over bonds from a longer-term risk/reward perspective."

Dividend payers, of course, have been among the strongest equity performers for the past few years as the market has recovered from the financial crisis, but Belski thinks they deserve even more love now, given how little bonds are giving back these days.

"While most acknowledge that stocks yield more than bonds for only the second time since the 1950s, few fully appreciate the investment implications," he said. "For instance, while receiving minimal interest payments on their bond investments, investors are also significantly impacting their purchasing power since current bond yields are below longer-term inflation expectations. On the other hand, stocks have proven to be a reliable longer-term inflation hedge. In terms of relative performance, current bond prices in relation to stocks remain abnormally high from a historical perspective, levels which have traditionally been a precursor for significant stock outperformance."
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
GRPN $4.93 0.00%
HD $113.07 0.00%
LOW $67.05 0.02%
AAPL $122.77 0.00%
FB $94.20 0.03%

Markets

Chart of I:DJI
DOW 17,440.59 -127.94 -0.73%
S&P 500 2,067.64 -12.01 -0.58%
NASDAQ 5,039.7760 -48.8540 -0.96%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs