A few days ago, the news service noted that individual investors have yanked a whopping $140 billion from equity mutual funds and ETFs in the last 12 months.
That’s more than twice the amount of money everyday investors were pulling out of the markets during the worst of the 2007-09 credit crisis and Great Recession. As a matter of fact, individuals have been pulling money out of stock funds consistently for the last eight years, with the exception of one stretch of time between mid-2013 and early 2015.
But companies continue to step into the breach. This just-published Bloomberg piece estimates that S&P 500 companies are on track to buy back $165 billion of their own shares this quarter. That would be the highest in any quarter ever, save for the quarter that coincided with the 2007 stock market peak.
|Individual investors have been pulling out of the markets, but companies are stepping up corporate buybacks.|
Bottom line: We have never seen a greater gap between the investing behavior of individuals, and the behavior of corporations. Average Joes and Janes want nothing to do with stocks, while powerful CEOs and CFOs can’t get enough of their own shares.
So is that bullish or bearish? Is the ongoing fear and conservatism among smaller investors a contrarian “buy” signal? Or is the over-confidence from Corporate America … and the fact these buybacks are being fueled with massive sales of new debt … a clear “sell” warning?
I’d have to lean toward the latter. It’s not like we’re talking about a month or two of panicky outflows from Main Street. We’re talking about consistent withdrawals lasting for several quarters. I believe inflows from a confident investing public are essential to healthy, long-term bull markets.
|“Companies are buying shares hand over fist … and using borrowed money to do it.”|
As for buybacks, it’s not like companies are taking advantage of huge bargains. They’re buying shares hand over fist seven years after the stock market run began, and using borrowed money to do it.
Shouldn’t they put more of that money to actual productive use, by building factories, funding R&D, marketing their products, or even paying workers more? The fact they aren’t doing so tells me they lack confidence in the underlying economy and growth outlook.
What about you? Do you think the divergence between what individuals and corporations are doing with their money is a troublesome sign? Or a bullish indicator for the future? What are you doing personally with your money? Committing more to stocks? Bonds? Cash? Let me know below.
Before the weekend, I noted the increased volatility we’re seeing in all capital markets and asked for your thoughts on it.
Reader Eric said: “What would you think if your central bank drug dealer said here’s a nice, big hit of money to keep you high for a while — but it is the last you are going to get. If you believe him, you get this last party. But you know withdrawal is coming.”
Reader Carl said: “I suspect that volatility is driven by speed — speed of change, speed of information, speed of trading. The faster the market operates, the larger the swings can become before the reaction. In a slower-paced environment, common sense has time to calm those knee-jerk responses.”
Reader Ken also suggested hair-trigger trading strategies are behind the increasing market chaos: “The volatility is in large part due to hedge and other large funds using computer trading. They are using formulas which are based on momentum and other non-fundamentals. Most small investors such as myself cannot compete.”
On the other hand, Reader Howard believes politics should take some of the blame. His take: “One of the reasons you see confidence building, then collapsing, can be seen in the current campaign shenanigans. The struggle is watching the building of hope over fear by so many ordinary fellow countrymen.
“People are fed up with elitist, rich politicians wanting to dominate and control their lives, promise them stuff, and then leave them disappointed yet again. We are all better than this and can unite for change away from politics to get our country moving again. People want genuine jobs and real hope.”
Thanks for weighing in. I agree with the comments that computerized trading, high-frequency trading, and frequent meddling by central bankers have all combined to create a more-volatile environment. There are ways to capitalize on that if you’re a more aggressive investor, and ways to minimize the impact from it if you’re more conservative.
I’ll continue to share my ideas about how to do so here, as well as more specific tactics and recommendations in my Safe Money Report. In the meantime, feel free to continue the conversation in the discussion section below.
China’s Anbang Insurance Group, with a group of investors, is trying to derail the merger of Starwood Hotels & Resorts Worldwide (HOT) and Marriott International (MAR). The Chinese-led group is offering $12.8 billion for HOT, topping the current $12.2 billion offer that’s on the table.
Speaking of takeovers, specialty grocery chain The Fresh Market (TFM) agreed to sell itself to Apollo Global Management LLC for $1.4 billion, or $28.50 per share. That’s a premium of around 24% to where the stock closed on Friday.
Turkey suffered another major attack, with a car bomb detonation in the capital of Ankara killing at least 34 and wounding 125. The bombing is the latest in a series of strikes tied to Islamic militants or Kurdish separatists.
German Chancellor Angela Merkel is facing increased political pressure thanks to rising anti-immigrant sentiment in the heart of Europe. The upstart “Alternative fur Deutschland” party, which runs on an anti-immigration platform, gained significant ground in regional elections over the weekend. Other rightist groups in Europe are fighting against the tide of refugees arriving from the Middle East and Africa, while Merkel is continuing to push an open door/border policy.
Is the M&A wave back again? Or are today’s deals the exception, rather than the new rule? What do you think about the ongoing violence in Turkey? Or the rising tide of anti-immigration sentiment in Europe? Let me hear about it in the discussion section.
Until next time,
P.S. FINAL NOTICE: Your $2,100 gift expires at midnight tonight! Don’t miss out on your opportunity to enroll in Global Currency Investor!
Click this link for details and to activate your membership before it’s too late!