'Bloodbath' leaves no stock market unburned

Fund-flow data show US investors' aversion to nearly every asset class. Yet one team of analysts sees no macro indicators of Armageddon.

By TheStreet Staff Aug 4, 2011 1:21PM

Image: Arrow Down (© Image Source/SuperStock)By Robert Holmes, TheStreet


Investors, watching in horror as the MSCI World Index of equities has slumped 11% from this year's peak, are pulling out of equities across the world.


U.S. equity mutual funds have gone from taking in $11.3 billion in January to redeeming $25.4 billion in July, according to a weekly fund-flow report from research firm TrimTabs. Similarly, U.S. equity ETFs swelled by $17.2 billion in December 2010 and shed $2.9 billion in August.


The S&P 500 Index ($INX) has tumbled nearly 10% since July 25 amid the debt debate in Congress and signs that the U.S. economy may be headed toward another recession. Reports on manufacturing from the Institute for Supply Management and gross domestic product for the first and second quarters have sunk markets to their lowest levels of the year.


Equities sold off broadly Thursday, with the S&P 500 down 3% and the Dow Jones Industrial Average ($INDU) off 350 points, or nearly 3%, at one point.


Before Thursday's carnage, Bespoke Investment noted that 23 of the 30 components of the Dow have been oversold, based on moving averages. Johnson & Johnson (JNJ), Merck (MRK) and Pfizer (PFE) are the most oversold. Meanwhile, just four Dow stocks are above their 50-day moving averages, Bespoke notes: IBM (IBM), Coca-Cola (KO), McDonald's (MCD) and Microsoft (MSFT). (Microsoft owns and publishes MSN Money.)


"There's no way around it, it's ugly out there," Bespoke analysts wrote Thursdays. "It has been quite a long time since this many stocks were oversold."


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However, retail investors aren't fleeing just domestic stocks. Along with U.S. equity mutual funds and ETFs, TrimTabs' data show individual investors in the U.S. are ditching Europe equity mutual funds and ETFs, Japan equity mutual funds and ETFs, Latin America equity mutual funds and ETFs, and China equity ETFs. Each has redeemed assets in the past week, according to the data.


"Mom and pop, alongside vanilla equity ETF investors, are upbeat only on stocks not listed in Asia, Europe, Latin America, or the United States," TrimTabs researchers wrote in this week's report. "The bloodbath appears to owe largely to the notion that the economy is dead and likely to grow deader."


So what has been working? Gold. The SPDR Gold Trust ETF (GLD) has pulled in $3.8 billion in the past month, TrimTabs notes, with a whopping $2.1 billion of that in the past week alone. Over the previous five trading sessions, the SPDR Gold Trust has risen 3.5% as the market has tumbled.


Shorting the U.S. Treasury has been another popular trade, with the ProShares UltraShort 20+ Year Treasury ETF (TBT) raking in $308 million last week. TrimTabs says it is one of the heaviest inflows in their database. The ETF is down more than 20% this year, however.


Emerging-market bond ETFs have also been a popular asset class, pulling in 2.9% of assets in the past week, according to TrimTabs. Emerging-market mutual funds also saw assets increase in the past week.


But if prolonged fear from retail investors is bullish from a contrarian perspective, then the S&P 500 is in great shape, TrimTabs says. There are several other contrarian bullish indicators to support a rebound. Leveraged long U.S. equity ETFs pulled in 12.4% of assets in the past week, which TrimTabs labels as "gargantuan." Leverage short U.S. equity ETFs, meanwhile, redeemed 8.1% of its assets in the past week.


"We believe this activity (flocking to longs and dumping shorts) works in favor of lower stock prices in the near term because our research shows that leveraged ETF flows are an excellent contrary indicator," TrimTabs researchers write. " In unbalanced action lies opportunity."

And all of those recession fears? Those are overblown, at least if economic indicators are any proof, TrimTabs says.


"Reliable leading macro indicators do not speak to us of Armageddon," the researchers write. "While the yield curve flattened between February and July -- the gap between the yields on the 10-year note and the three-month bill decreased to 296 basis points from 345 basis points -- we believe it has to pancake much more in order to signal the distinct possibility of a recession unfolding in the next four quarters."

Aug 4, 2011 2:25PM
Should have listened to Ron Paul years ago
Aug 4, 2011 3:20PM
So if the price of oil dropped... why the hell am i still paying $3.50 for a gallon of gas? This seems a little off to me
Aug 4, 2011 3:34PM

Yea..! Summer of Recovery...!

We should have listened to Ross Perot years back also.

....a great sucking sound...

Aug 4, 2011 3:02PM
maybe the stocks will rise and the gold drop. Oil is down that will help the economy instaed of running it in the ground. (a little pun)
Aug 4, 2011 3:54PM
Take it easy folks!  Money is honey, but health is wealth!    Is there anyone out there who would trade places with Apple's Steve Jobs and his health problems?  Not me.   
Aug 4, 2011 5:02PM

The Congress and Pres.  should 1) halt all foreign aid.

2) bring all our military home. and disband most of them.

3) Publish the serial numbers of our nuclear warheads and their assigned targets.

4) Cancel the space program and disband NASA.

5) Cut "defense" spending from $750 billion per year to $200 billion per year, saving $5.5 trillion over the next 10 years.

6) When the streets of every foreign city are running with blood in demos over the above, broadcast tapes to them of the debates in the House and Senate over the debt crisis.

7) Order Japan and S. Korea to open their domestic markets to the U.S. auto makers or halt the sale of all Japanese and Korean vehicles in the U.S.

Aug 4, 2011 4:27PM
The congress just didn't get it did they.......did I hear them say the wealthy were going to create jobs?   Without jobs the cycle will continue.  This should not have been a surprise.  Dodie
Aug 4, 2011 4:01PM
All i can say is what a sad day! But as long as THE PEOPLE THAT SPEAK FOR US  SO TO SPEAK ARE acting like two year olds we will continue on this path! But it is up to us as the people to say enough!!!!!!!!!!!!!!! Just like we would do with a two year old. NO BALLS NO GLORY FOLKS!!!!!!!!!!! I AM TALKING FEMALE OR MALE..........
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