The fund flow figures, released Friday by Lipper, revealed some interesting trends. Bond funds eased a bit from March but remained strong, taking in $9 billion -- including $6 billion into high-yield, or junk, bond funds. Meanwhile, money-market funds witnessed $55 billion in outflows -- a large sum partly explained by withdrawals made to pay Uncle Sam this tax season. However, some of that money went into the $14 billion received by stock funds -- even the so-down-they're-up tech and telecom fund categories saw modest inflows amid heady stock market returns. Indeed, tech and telecom funds had a bang-up April. Buoyed by bull signals from Broadcom ( BRCM), Nokia ( NOK) and AT&T ( T), telecommunications funds rose 9.57% in the month -- "mildly reminiscent of the two-month double-digit surge in the fourth quarter of 2002," Lipper noted. Tech funds, meanwhile, surged 9.91% on average, amid positive news from eBay ( EBAY), Intel ( INTC) and IBM ( IBM), among others. But as Lipper noted in a recent news release, these two sectors remain among the priciest in terms of price-to-earnings multiples. Tech-sector funds sport a 55 P/E multiple on average. Lipper's Cassidy noted that while much of the inflows went to more cautious areas such as balanced funds, REIT funds and income funds, he was surprised that growth funds gained new money in April. Putting money into growth funds is, in effect, making a bet that the economy will post a strong recovery. "My personal scenario is that the economy will remain soft," he said -- not the conditions that would benefit large growth stocks. Cassidy found little genuine leadership among large-cap stocks to signal a sustainable turnaround. "Forget tech for the moment. If you look at Johnson & Johnson ( JNJ) or Coca-Cola ( KO), even they have P/Es in the mid-20s. Why rush to get in now?"
Ratkai and others counsel investors not to time the market solely on the basis of fund flows. "They offer a big lens to judge approximately if people are feeling bullish or bearish," he said. But other technical measures are pointing to near-term weakness, including the percentage of S&P 500 stocks trading above their 10-week moving average. Clay Allen, an adviser and provider of institutional research in Denver, tracks stocks' 10-week moving averages. When more than 80% are above their moving average, he considers the market overbought and poised to retrench. At recent levels, 94% of S&P 500 stocks are trading above their 10-week levels -- "it's off the charts, the highest levels since three years ago. "It's one thing to hope for a big breakout, and it's quite another thing to actually get one," Allen said.
No one has a crystal ball to divine what the latest inflows foretell, but Cassidy suggest investors pay close attention to the economy. If consumer confidence picks up and businesses increase capital spending, "growth funds should continue to outperform." However, if business investment lags, value funds should resume leadership. "As the last two years have taught us, investors should wait for more proof that capital spending is in fact in the midst of a rebound before again making the leap to growth," Lipper noted recently. Meantime, Cassidy said he expects to see smaller inflows in May. "April was a special case where you had wonderful news. But I have a hard time imagining it signals a return to a runaway bull market that will make you 20%."