Americans Are Pulling Out Of Stocks And Bonds

Americans Are Pulling Out Of Stocks And Bonds

Since July, American households, which account for almost all mutual fund investors have pulled money both from mutual funds that invest in stocks and those that invest in bonds.

It’s the 1st time since Y 2008 that both asset classes have recorded back-to-back monthly withdrawals, according to a report by Credit Suisse (NYSE:CS).

Credit Suisse estimates $6.5-B was withdrawn from equity funds in July, and $8.4-B was pulled from bond funds, citing weekly data from the Investment Company Institute as of 20 August.

Those July outflows were followed up in the 1st 3 weeks of August, when investors withdrew $1.6-B from stocks and $8.1-B  from bonds according to the data.

When we see something that has not happened since Q-4 of Y 2008, it is worth noting, if this continues it augurs a broad-based nervousness on the part of household investors, aka “mom and pop.”

Withdrawals from equity funds are usually accompanied by an influx of money to bonds, and an exit from both at the same time suggests investors are not willing to take on risk in any form. While retail investor sentiment is not always the best predictor of market moves, it is significant.

I call it the Bulls Vs. the Bears.

This action suggest households are getting nervous about holding investments, and that could lead to some real economic implications including cutting back on spending which we are already seeing.

Should the market turn lower again I am looking to see households move to cash, or into bonds. I bet it will be to cash.

The cash flowing out of mutual funds (stocks) suggest retail investors who held 89% of US mutual fund assets last year, may not have much faith in financial markets at these lofty valuations.

We wait and watch…

Have a terrific weekend.


Paul Ebeling

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