Stocks Are Stuck In A Bit Of A Rut

Stocks Are Stuck In A Bit Of A Rut
Daniel Johnston

10 months ago2 mins

Mentioned in story

What’s going on here?

Investors have got the jitters about stock markets right now.

What does this mean?

Let’s face it: there’s not much to feel optimistic about these days. Inflation’s gone nowhere, interest rates are squeezing the already sluggish economy, and a wobbly banking sector’s threatening to bring the whole house of cards tumbling down. It’s no wonder, then, that investors are shying away from stocks. Data from S&P Global Market Intelligence shows that, in the past year, institutional investors have sold $330 billion more in stocks than they’ve bought, while retail investors yanked out $28 billion. Follow that money, and its trail seems to lead to safer investments with decent returns – like money markets, which ballooned to a record-breaking $5.3 trillion in assets last week.

Money market funds

Why should I care?

For markets: Opposing opportunity.

The situation might look bleak, but some pundits think the gloom’s hiding a tempting opportunity. These folk see the markets’ pessimism as a “contrarian indicator”, a sign to zig when others zag – like Buffett’s famous “be greedy when others are fearful” mantra. See, with a mountain of cash on the sidelines, there’s less room for money to be pulled, which could limit losses. Plus, the slightest glimmer of good news might tempt folk to pour cash back into markets, lifting share prices once again.

Capital flows
Source: S&P Global

For you personally: Tread carefully.

Before you dive headfirst back into stocks, remember that there are still plenty of risks out there – and indicators like these might be jumping the gun on calling a rally. If you are planning to put some cash to work, though, stay disciplined, think long-term, and brace for potential turbulence. That’s doubly true for anyone picking individual stocks, with even professional active fund managers struggling: after all, only about a third of them managed to outperform their benchmarks – usually big indexes like the S&P 500 – last quarter.

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