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As I write this the S&P 500 futures are indicating a down open setting us up for possibly three down days in a row. If you watch the financial media someone will undoubtedly talk about how the sky is falling. I was actually listening the CNBC in the car the other day and almost had to pull over when they asked one of the guests if he was worried that the Dow was down 47 points after such a major rally. I would actually worry if it was the other way around. I have said it before and I will say it again, markets don’t go in straight lines, it is normal and healthy for up moves and down moves to correct from time to time. When they don’t we get what happened in Japan, Apple, Gold, etc.
Money continues to flow out of bond funds and ETFs into stock funds and ETFs. The biggest bond fund, Bill Gross‘s $261.7 billion PIMCO Total Return Fund had a $7.5 billion net outflow last month, according to data from Morningstar Inc. on Friday. Year to date through July 31, $15.6 billion has been pulled from the fund.
Interestingly I saw a note from 361 Capital that only 20% of the money being pulled from bonds is going into stocks. This cash on the sidelines could fuel the stock rally for a while.
In Muni Bonds a Michigan county’s decision to postpone a $53 million bond sale is a sign of the problems facing the muni market in the wake of Detroit’s bankruptcy. Investors are growing more cautious, especially in Michigan, and that could lead to even higher yields and lower prices.
Another item of note is that money is starting to flow into international and emerging market stocks, especially in wake of the higher than expected European PMI Data. This is a good sign as you like to see confirmation of a rally from other stock markets.
We sold most of the counter trend positions in our Trend Aggregation Strategies prior to the three day decline based on market strength. We also went back into floating rate bonds in our income strategies.
Think Risk Factors Not Asset Classes