Investors Still Pulling Money Out of Stock Funds

Normally, when the market goes up for a sustained period of time, investors pile into stock investments. Likewise, when the market goes down several months in a row, investors normally pull their money out of stocks.

These are not normal times.

Having already pulled $12.9 billion out of domestic stock funds between March and October, investors picked up the pace of their withdrawals in November, yanking an additional $12.1 billion. Domestic ETFs were dinged for an additional $8.5 billion over the March-November period. (See the Hulbert article at MarketWatch for more details.)

This is interesting on a couple different levels. On the one hand, I saw just this week that the latest Investors Intelligence poll was showing 50% were bullish while just 16.7% were bearish. Yet that obviously is not the tale told by these fund flows. Sometimes there's a disconnect between what people say and what they do. These fund flows paint a very different picture, one in which the actions of individual investors indicate they are still very nervous about further losses in stocks.

Hulbert explored some of the possible implications of these fund flows in an article a month or so ago for the New York Times. His general conclusion: the stock market likes to climb a "wall of worry," so for the short-term, this sort of apparent fear may be helpful. But ultimately, it takes investors coming back to the market in a significant way to sustain pushes to new highs. If the market sentiment doesn't turn more positive at some point, he's concerned this could be a negative omen for the longer-term.
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Mark Biller is Sound Mind Investing's Executive Editor. Visit www.soundmindinvesting.com to learn more.