Market Musings 220324:
Stock Market Cannibalism Is Rife

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Investors have not chased this year’s stock market rally…

Stock markets have been strong, surging to new all-time highs, but not necessarily on the back of huge buying by retail investors as one might expect.

According to recent fund flow data, retail investors have been selling more than buying stock-based funds and ETFs, and if anything have added money to corporate bond and money market funds if anything, chasing the relatively generous income yields on offer at present.

According to Bank of America, the last week (ending March 20) saw US investors withdraw $22 billion from US equity ETFs, especially from Technology-focused funds/ETFs - but this outflow did not stop stock markets going up yet further.


In fact, over the year to date, US investors have heavily favoured money market funds (i.e. high interest cash accounts) and corporate bond funds over exposure to stocks. As of March 13, US investors have invested $222 bn in money market funds and $135 bn in bond funds as they were tempted by some of the highest income yields seen in the last 15 years. But in contrast, they only added a mere $24 bn to their holdings of equity funds and ETFs.

US investors have piled money into money markets, bonds this year


Source: Investment Company Institute. As of March 13, 2024

And small-cap stocks have been largely left behind

The strong performance of stock markets over the year to date has come mostly in the largest companies in the US, Europe and Japan. Compare the performance of key large-cap benchmark indices with small-cap indices - there is a gap of at least 8% between large-cap and small-cap indices in each region.

Small-Caps have trailed this year in the US, Europe, Japan



The worst small-cap performance has come in the unloved UK market - while the UK FTSE 100 large-cap index has only managed a 3.8% return so far this year,…

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