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Everyone Hates Stocks: Is That Bullish?

Tracey Ryniec

Everyone hates stocks, especially U.S. stocks.

Since the Great Recession, investors have been taking money out of domestic equity funds by the billions. Even a soaring stock market hasn't convinced them to get back in.

The Investment Company Institute tracks weekly inflows into stock and bond funds. Despite the major stock indexes rallying during this earnings season, investors continued to flee domestic stock funds in 4 out of the last 5 weeks. For the week of July 18, they managed to put $95 million into domestic stock funds but then resumed taking money out again the next week.

  • June 27, 2012: -$1.5 billion
  • July 3, 2012: -$3.2 billion
  • July 11, 2012: -$1.5 billion
  • July 18, 2012: $95 million
  • July 25, 2012: -$2.2 billion

Conversely, the flow of money into bond funds has been consistently high. In fact, in the week of July 18 when investors were putting money into stocks, they were putting even more money into bonds.

  • July 18, 2012: $646 billion
  • July 25, 2012: $5.8 billion

Last week, the Bond King, Bill Gross, joined the chorus of voices denouncing stocks writing in his monthly Investment Outlook letter on PIMCO, that the "cult of equity is dying."

He wrote:

Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of "stocks for the long run" or any run have mellowed as well. I "tweeted" last month that the souring attitude might be a generational thing: "Boomers can’t take risk. Gen X and Y believe in Facebook but not its stock. Gen Z has no money."

Before you say, "he's talking his book. He's the bond king, after all," he also said that it's even more of a stretch to assume that long-term bonds and the bond market will replicate the outstanding performance of the last 30 years.

For many, Bill Gross' recent comments brought to mind the infamous Aug 13, 1979, BusinessWeek Magazine cover story titled: "The Death of Equities: How inflation is destroying the stock market."

Not too long after that article, stocks hit a multi-decade bottom and started the longest bull market rally in Wall Street history. Stock investors averaged 18% a year over the next 20 years.

To me, it seems that all this "hate" towards stocks is a contrarian indicator. When the vast majority of people dislike an asset class, it's time to take a look at it.

Could all the current negativity against U.S. stocks actually be bullish?


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