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Why you should worry about the flood of new cash into U.S. stock funds

·3 min read
Why you should worry about the flood of new cash into U.S. stock funds

U.S. stock funds now are riding a river of new cash from investors — and that is not a bullish sign. In fact, fund flows are a contrarian indicator: the U.S. stock market in the past has performed better when there is a net outflow of cash. The evidence is summarized in the chart below, which plots net inflows of cash to U.S. stock funds (both open-end and exchange-traded funds) by year over the past decade.