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."
For his part, Mark Arbeter, chief technical strategist at S&P Capital IQ, thinks some of the money currently camping out in bonds is likely to end up helping push equities to new highs. "The market doubters seem to be lurking everywhere, with consistent calls for recessions, bear markets, and even market crashes," he wrote on Friday. "This, in our view, is extremely bullish, and will probably leave many on the sidelines shaking their heads. We believe all the sideline money, i.e., the enormous funds in money markets and Treasurys, is ample fuel for the stock market to post outsized gains as rising prices force many bears to capitulate and enter the market." Arbeter believes the pressure is starting to build on investors who have so far resisted getting into stocks during this recent run higher. "Generally, those that are underweight equities during this advancing phase are left frustrated waiting for a decent-sized pullback that never materializes," he said. "This type of consistent push higher, if it occurs, will be a very welcome sight for those already in and calling for higher prices, and much easier to predict from a technician's standpoint. We see the S&P 500 heading up to 1,450 by September, 1,500 by October, and potentially as high as 1,600 by the first quarter of 2013." Regardless of how the rest of 2012 plays out, the recent decision of Bill Gross, PIMCO's bond king, to predict the coming death of equities is looking particularly ill-timed. As for Tuesday's scheduled news, Home Depot ( HD) is the big morning earnings report, and the average estimate of analysts polled by Thomson Reuters is for a profit of 97 cents a share in the July-ended period on revenue of $20.74 billion. In the same period a year earlier, the Atlanta-based home improvement products retailer earned 86 cents a share on revenue of $20.23 billion. Last time around, Home Depot reported in-line results for its fiscal first quarter, posting earnings of 65 cents a share on revenue of $17.81 billion with same-store sales rising 5.8%. The company also lifted its fiscal 2012 outlook at the time, forecasting earnings of $2.90 a share, an increase of 17%, with sales growing 4.6%. Shares of the Dow component are up more than 25% so far in 2012, outperforming a gain of 7.8% for the blue-chip index. The stock hit a 52-week high of $54.28 on July 27, and closed Monday's regular session at $52.82. The sell side is bullish ahead of the report with 19 of the 30 analysts covering the stock at strong buy (9) or buy (11) and the median 12-month price target at $57. Investors will be looking to hear more about the company's agreement last week to acquire U.S. Home Systems, an Irving, Texas-based maker of bath and kitchen refacing products, for a little less than $100 million. While not counted among Home Depot's bulls, Jefferies likes the shares better than it does those of rival Lowe's ( LOW) ahead of earnings.
"We believe the market fairly reflects the fact that HD continues to outperform on the sales and EBIT
earnings before interest and taxes lines and the greater likelihood of downside risk at LOW," Jefferies said, adding later: "Expecting HD to outperform LOW. Based on our checks, we believe Home Depot's 2Q results will continue to outperform Lowe's, despite both likely slowing sequentially against more challenging comparisons and a pull forward of demand in 1Q." That said, as reflected by the firm's hold ratings on both stocks, Jefferies thinks the overall market environment is a headwind. "Our checks on home improvement retail throughout the quarter indicate softer comp store sales, particularly in June, driven by: 1) the weather-related pull forward of demand in 1Q; 2) more challenging comparisons; 3) extreme temperatures/drought that reduced demand for lawn & garden products in some parts of the country; and 4) continued sluggishness in big ticket items," Jefferies said. "Vendors sound a bit more cautious on DIY do-it-yourself. Building materials vendors have been putting up good numbers this earnings season, but a lot of this has been attributable to improvements in new home construction. Many of these supplier comments have been more cautious around the DIY business." The firm is in-line with consensus, expecting earnings of 97 cents a shares from Home Deport in the quarter with same-store sales seen up 2%, and it has a $48 price target on the stock, implying potential downside of more than 9% from current levels. Check out TheStreet's quote page for Home Depot for year-to-date share performance, analyst ratings, earnings estimates and much more. Other early reporters included AGCO Corp. ( AG), Cache ( CACH), Dick's Sporting Goods ( DKS), Estee Lauder ( EL), Flowers Foods ( FLS), Michael Kors Holdings ( KORS), Millipore ( MIL), National Semiconductor ( NSM), Plug Power ( PLUG), Saks ( SKS), TJX Cos. ( TJX), and Valspar ( VAL). The after-the-bell crew includes Bob Evans Farms ( BOBE), Crown Crafts ( CRWS), DayStar Technologies ( DSTI), JDS Uniphase ( JDSU), KongZhong ( KONG), and Lifeway Foods ( LWAY). Tuesday's economic calendar includes the National Federation of Independent Business small-business survey for July at 7:30 a.m. ET; retail sales for July at 8:30 a.m. ET; the producer price index for July at 8:30 a.m. ET; and business inventories for June at 10 a.m. ET. And finally, Groupon ( GRPN) shares were tanking in late trades after the online daily deals company beat Wall Street's profit view for the latest quarter but revenue came in light. The Chicago-based company posted non-GAAP earnings of $53.8 million, or 8 cents a share, for the three months ended June 30 on revenue of $568.3 million. The average estimate of analysts polled by Thomson Reuters was for a profit of 3 cents a share in the quarter on revenue of $573.1 million. Groupon sees revenue ranging from $580 million to $620 million in the third quarter. In addition, gross billings declined on a sequential basis, falling to $1.29 billion in the second quarter from $1.35 billion in the first quarter. The stock, which went public in November 2011 at $20 per, was last quoted at $6.15, down 18.5%, on after-hours volume of 9.77 million. -- Written by Michael Baron in New York. >To contact the writer of this article, click here: Michael Baron.