Strategists Are Troubled As Fund Inflow Hits Record

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Investors have poured into U.S. mutual funds and ETFs at a record rate in recent weeks. But some investment strategists see some warning signs. Could this be the rash of buying typical at market tops?

Investors funneled a record $34.4 billion into U.S. equity mutual funds and ETFs this month (through Wednesday, July 17), booking the second-highest monthly inflow on record, TrimTabs Investment Research reported Friday.

Mutual funds absorbed $8.7 billion and ETFs $25.8 billion. Meanwhile, investors fled bond funds to the tune of $77.3 billion since June as bond prices tumbled and interest rates soared to two-year highs.

However, the TrimTabs' in-house indicator measuring investor demand skidded to a six-month low.

"Our demand indicators continued to turn less favorable in the past week, and traders should definitely consider paring long positions," TrimTabs wrote in a report. From a contrarian perspective, massive inflows into ETFs are bearish for stocks in the short term, the firm contends. Since the start of July, corporate takeovers and stock buybacks totaled $16.2 billion, swamping the IPO market, totaling $6.2 billion.

Fewer Stocks Supporting New Highs

SPDR S&P 500 ( SPY ) ended the week ahead 0.99% to 169.17 -- a historic record -- after rising for four weeks straight. It's returned an eye-popping 19% year to date.

PowerShares QQQ ( QQQ ), tracking the 100 largest nonfinancial stocks on the Nasdaq, shed 0.94% for the week. It's surged 15% year to date.

The stock market has eclipsed its former high from two months ago, but fewer stocks are hitting new highs currently than in May, which suggests weaker market internals.

"We're retesting the old peaks on the New York Composite Index, but (the number of) issues making new yearly highs is attenuating," The Todd Market Forecast told clients in Friday. "I'm a bit concerned."

Earnings Scorecard

Of the 91 S&P 500 companies that have reported second-quarter earnings so far, about two-thirds (65%) have beat expectations, according to Thomson Reuters. Nearly half (49%) have topped revenue forecasts.

Overall second-quarter earnings are projected to grow 2.8% year over year. For every company that has issued positive pre-announcements, six have issued negative outlooks. "If it persists, this would be the most negative negative/positive ratio since first-quarter 2001," Thomson Reuters said in a report.

Foreign Markets

IShares MSCI EAFE ( EFA ), tracking developed foreign markets, rose 1.47% for the week. In regaining its 50-day moving average this past week, it confirmed it's in a solid uptrend.IShares MSCI Emerging Markets ( EEM ), added 0.86% to 39.28. Although it's climbed higher the past two weeks, it still trades deep below both its 50- and 200-day moving averages, indicating a strong downtrend. EFA is up 7% year to date while the EEM lost 11%.

While the U.S. market has outpaced all global markets this year, some asset managers doubt it can maintain its leadership for long. "By several yardsticks, the U.S. market is presently more richly valued than stocks in developed and developing countries," said Gregg Fisher, founder and chief investment officer at Gerstein Fisher in New York. "At some point, sooner or later, some other investment will take the baton and globally diversified portfolios will once again look attractive relative to U.S.-centric ones."

Peter Schiff, an outspoken critic of Federal Reserve policies, says U.S. fundamentals fail to support higher stock prices.

"The data makes it clear that while asset prices (stocks, bonds, and real estate), are currently being inflated by an activist monetary policy, the real economy continues to stagnate," Schiff, CEO and chief global strategist of Euro Pacific Capital of Westport, Conn., wrote Friday. "The staggering growth in government debt, the persistence of high unemployment, the stifling effects of new rounds of anti-business regulations, the existence of dangerous asset bubbles, and our dependence on zero percent interest rates and continuous Federal Reserve purchases of Treasury and mortgage debt qualify our current economy as a walking zombie."

SPDR Gold Shares ( GLD ) rose 0.77% for the week, ending at 125.08. It has risen the past two weeks but appears to be staging a countertrend rally in a long-term downtrend. It still trades deep below its 50- and 200-day moving averages, which is very bearish. It's melted 23% year to date.

Follow Trang Ho on Twitter @IBD_THO .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: EEM , EFA , GLD , QQQ , SPY

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