Mutual Fund Investors Dump Stocks For Five Straight Weeks

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It could be time to get bullish on stocks again.

For the last five weeks investors have dumps tens of billions of dollars of investments in mutual funds that specialize in U.S. stocks, new research shows.

Investors pulled a total $51.6 billion in cash from such funds in the five weeks through January 20, according to a report from the Investment Company Institute, which tracks the data. That included $8.2 billion being redeemed in the most recent week.

U.S. stock mutual funds are primarily owned by individual investors rather than by large institutions.

The news comes as the stock market rally, which started last March has come to a halt, at least temporarily. So far this year, the SPDR S&P 500 exchange-traded fund, which tracks the S&P 500, has gained nothing (0.0%), according to data from Yahoo. That’s a stark contrast with the surge 13.8% rally over the last 12 months. All figures exclude dividends.

So what?

The combined factors of a pause in the rally and small investors fleeing stock funds is bullish for stocks in general.

First, markets never go up in a straight line. There always tend to be pullbacks or pauses along the general journey higher. That seems to be what is happening now.

Second, individual stock investors, such as those who invest in mutual funds, have a history of being terrible at making investments. They buy when the should be selling and vice versa.

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The fact that investors are dumping U.S. stock funds now is a bullish piece of news. Historically, such an outflow would coincide with an opportune moment to buy stocks.

Of course, that doesn’t mean that the outflow won’t continue or that stocks could continue moving sideways or even down for a while. Still, now would seem to be a good moment to at the very least think about getting bullish.

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