Market Commentary – 1/10/14

January 10, 2014

Greetings FTM Insiders!

I just finished reviewing the latest Lipper Fund Flow data and wanted to share a few things with you about the markets this week.

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Investors are clearly skeptical about last year’s rally as we move into 2014. This is obvious based on the overall weak inflows into U.S. stocks this week.

For the week:

Equity Funds +$1.9 billion
Taxable Bond Funds: +$4.1 billion
Municipal Bond Funds: -$0.1 billion
Money Market Funds: -$6.8 billion

Despite their skepticism, investors are excited about the returns they witnessed (and hopefully enjoyed) in 2013. Recently, they have begun to translate this exuberance into action by finally beginning to move some cash off the sidelines. Much of this cash is coming out of money market funds. However, this week’s $6.8 billion outflow from money markets is just a drop in the bucket of this massive $2.2 trillion market. (There is a staggering amount of capital sitting on the sidelines ready to be deployed into various asset classes… and it is just getting started.)

The key to successful investing is determining which direction this money will flow next. This is why examining money flow data is vital to understanding where the market “is” at any given time. Money flow data is one of the 10 metrics that are measured by our Market Barometer (formerly known as the Market Indicator System.) Our Market Barometer turned GREEN on October 22 and the market has been locked in a firm uptrend ever since. However, this latest fund flow data shows that this multi-week rally in U.S. stocks is getting a bit exhausted.

One final comment on emerging markets. From a closer examination at this week’s data, it is obvious that the hot money was flowing into emerging markets… to the tune of $944 million. Most investment banks have cut their expectations for emerging markets in the near-term so these inflows are likely composed of bargain hunters and contrarians.

Have a great weekend!
Jerry

P.S. I will be in studio tomorrow to record FTM Weekly. Look for the new episode in your email tomorrow!

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