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Despite a strong stock market rally since October 2022, investors have pulled money out of equity funds.
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Fund flow data reveals investors are still seeking out safer assets like bonds and money market funds.
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Investors have taken $240 billion out of stock market funds, suggesting to Fundstrat’s Tom Lee that a FOMO rally is imminent.
Our Chart of the Day is from Fundstrat, which shows that investors are still playing it safe in the stock market despite a solid rally.
Since the bear market low in October 2022, the S&P 500 has rallied about 30% while the Nasdaq 100 is up just over 50%.
But instead of chasing the rally higher and buying stocks, investors are doing the opposite. Since October 2022, investors have taken a cumulative $240 billion out of stock mutual funds and ETFs. Over the same time period, they purchased $107 billion worth of bond funds and $1.1 trillion worth of money market funds.
The big shake-up in fund flows suggests that investors sold stocks at a time when they should have been buying them, and that could serve as fuel for a potential FOMO rally in the stock market, according to Fundstrat’s Tom Lee.
And that “fear of missing out” rally could be starting to get underway after fund flows to equities saw its biggest two-week jump since February 2022.
“Equities finally seeing positive inflows from retail, the first time since February [2022]. The difference is that retail year-to-date has seen -$240 billion of outflows. Yet, the S&P 500 is on track to be [up] ~20% = FOMO coming,” Lee said.
Cash has been the main attraction for investors since the Federal Reserve started to aggressively hike interest rates last year. According to data from the Fed, retail investors are holding a record $1.6 trillion in money market funds, taking advantage of 5% interest rates.
Meanwhile, money market fund assets that include both retail and institutional investors have surged to a record $5.7 trillion. That money could serve as the fuel needed to push stock prices higher if investors start to believe that the rally that began just over a year ago is sustainable.
Lee has a year-end S&P 500 price target of about 4,800, representing potential upside of 5% from current levels.
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