Olivia Pratt
0
All posts from Olivia Pratt
Olivia Pratt in Forecasts and everything related,

The stock market hasn’t hit bottom—yet

Equity fund outflows are minimal, but short funds are bailing

If investors are panicking over this recent market retreat, you wouldn’t know it from their actions. And that’s not such a good thing for those banking on a rebound.

Yes, stocks are in the midst of their nastiest decline in three years, yet outflows from equity funds have been “remarkably light,” according to TrimTabs Investment Research.

“The S&P 500 is down 7.4% from its record closing high, yet fund investors don’t seem to care,” said TrimTabs CEO David Santschi, pointing out that U.S. equity mutual funds and exchange-traded funds have “a scant” $1.6 billion in October even though they have dropped 5.6%.

To put this in perspective, U.S. funds saw outflows of nearly $14 billion in May and $7 billion in August.

The same complacency seems to have washed over global funds, which have shed $5.4 billion as they have slipped 4.2%. China, in particular, appears to be unfazed. Exchange-traded funds in the country have added $150 million in the past four weeks despite a 5.5% loss.

“Such a lack of response to steep declines is negative for stocks in the short term,” Santschi said. “Interim bottoms often happen when fund investors are getting scared, and we aren’t seeing any signs of panic.”

What’s more, short bets have been scaled back in a big way. Leveraged short exchange-traded funds posted outflows equal to 5.6% of their assets in the past week and 10.2% of their assets in the past two weeks, TrimTabs numbers showed.

“If the day trading crowd doesn’t want to bet against the market here, what exactly will it take to get them to go short?” Santschi said.

By

SHAWN LANGLOIS

MARKETS REPORTER