Let me pose a question: Over the last 20 years, which four-week period showed the most redemptions from equity funds including ETFs? OK, it must have been when market fears were high due to terrible economic fundamentals. Was it the massive bear market in 2000-2001 as the .com era imploded? No! Well then it must have been the financial meltdown in 2008-2009? Sorry, wrong again! The answer is the four-week period ended July 6, 2018. Huh?
According to Lipper (Thomson Reuters Co.), in the last four weeks, equity investors redeemed $39.2 Billion from equity funds and ETFs. It’s a level of fear unprecedented in the last twenty years and one that should pique the interest of contrarians. Historically, betting against this crowd movement, in either direction, has proven profitable. So, what could be going on?
Admittedly, by measures such as price-to-book and price-to-sales the stock market is expensive; but, this has been the story for years now. Furthermore, with earnings up 20-25% year-over-year last quarter, this quarter, and the next one, the price-to-earnings ratio is plummeting as the market stagnates. Also, there is no economic meltdown as the 2Q GDP may come in above 4% according to the Atlanta Fed. Add to that a bond market that has frustrated the bears by…
