Image Source: Pixabay

With the election two weeks behind investors, data on fund flows shows the removal of election uncertainty has been leading to a pick-up in the level of investment dollars moving into equities. The Investment Company Institute reported flows into domestic equities were up $43.9 billion for the week ending Nov. 15, 2024, as seen in the chart below. Foreign equities and bonds also experienced positive flows.

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On a cumulative basis, both U.S. equities and bonds have experienced strong inflows this year, as seen in the first chart below. The second chart below is taken from a post published in mid-December 2023, Equity Funds Experiencing Outflows In Spite Of A Strong Stock Market, and the chart shows investors were far less optimistic on stocks in 2023, at least based on U.S. investment flows.

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The lack of excitement for stocks in 2023 is somewhat understandable given the near 20% decline in the S&P 500 Index in 2022. As one may recall, nearly every asset category was down in 2022, so investors had very few places to seek shelter from the rough market patch. Conversely, the last two years have rewarded investors generously, with the S&P 500 Index up 58% on a total return basis.

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For investors, it may be wise to stay focused on equity categories that have favorable fundamentals on a going-forward basis, and to avoid simply purchasing stocks because the market has generated strong returns over the past two years.

From a sentiment perspective, bullish sentiment, as reported by the American Association of Individual Investors, is at an elevated level. The individual investor sentiment measures tend to be contrarian measures, i.e., they tend to be the most positive near market tops.

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