Groundhog’s Day for Stocks
Yes, it’s groundhog’s day. If the Wall Street Groundhog sees a shadow, can we expect 6 more weeks of stock market hibernation? Well, it definitely seemed like Mr. Wall Street Groundhog saw a shadow today because the action was listless. Low volume, flat trading and not much movement in any major sector.
I think we’re going to see some consolidation in the next few days for stocks. The market’s gone up pretty fast the last few months and a day like today is quite healthy. The main catalyst for the stock market’s recent run-up, I believe, is the fact that people are taking money out of bonds and putting it back into US Equities. Apparently, investors took $2.7 billion out of Muni-bond funds and put some of that into domestic stocks. Even on days (like last week) where the economic or corporate earnings data were terrible — the market drop was rather tempered. Very positive sign for the stock market.
If individual investors jump back into US Equities in 2011, we can expect a really good year for stocks even if the earnings or economic data aren’t so great. Much of the gains in 2009 and 2010 were from professional investors and active traders. The average individual investor largely sat on the sidelines during the bull market.
As we see them pull out of bonds and back into US stocks, it should help keep the market stable and prevent events like the May 2010 Flash Crash (where the Down dropped 800 points in a day) from happening again.
In any case, keep your eyes closely on the money flow in or out of bonds. It could be a very clear indicator of where our stock market is headed.
And on a lighter note — if there ever was a Wall Street Groundhog, we should name him “Mr. Gekko”.
