The Disconnect Between the Market and News Events
In 2013, there was much to worry about. Not only did we start the year headed off the fiscal cliff, but interest rates rose, bonds got hammered, tax-rates climbed, and the government shut down. YET equities soared with YTD U.S. stock returns the highest seen in a decade. This has been an excellent lesson in the disconnectedness of news and market returns.
One year ago, did you have a desire to "get out" of the market...or at least not do any equity purchasing? If so, it was certainly understandable to have those reservations. However, doing so would have been a shame because 2013 has been a record-breaking year for equities.
However, the important thing is that you (our clients) did not act on these desires or reservations. Unfortunately, others assumed they knew what the year would bring and were wrong. In fact, investors have been taking money out of stocks and moving into the safety of bonds and cash since the bear market bottom in early 2009 (almost five years ago). According to Lipper and Strategic Insight data, almost $320 billion was withdrawn by investors from U.S. stock portfolios between 2008 and 2012 - during the seventh longest bull market since 1900.
When did investors begin moving back into stocks?
Yep, 2013. $82 billion of cash flowed into U.S. stock portfolios in 2013 (through end of November). Are they late to the party? Considering that the market generally takes three steps forward and one step back and it has now taken five steps (i.e., years) forward, most likely!