What Investor Flow Is Telling Me

Fund flow data for
the week ended June 4
shows that investor
enthusiasm continues to increase, as inflows to equity funds continues to
increase while inflows to high yield bond funds resumed after a two-week
respite.

Investors poured money into domestic equity funds
this week but withdrew cash from their foreign stock fund holdings. Equity fund
allocations for the week totaled $1.5 billion. Most importantly, however, $3
billion made its way its way into domestic stock funds. And small-cap stock
funds (generally associated as higher risk) were the biggest beneficiaries of
the domestic category, receiving $895 million during this time period. Elsewhere
in stock-fund land, non-domestic funds reported an outflow of $1.5 billion, most
likely in the wake of last week’s anemic European economic data.

Investor enthusiasm for taxable bond funds
continued this week, as these funds reported $2.4 billion of inflows. Most
indicative of the growing risk appetite among investors, however, was the fact
that $1.45 billion went to high yield funds, the largest since February 26,
2003.  Additionally, $413 million made its way into investment-grade bond funds.

Year to date, $79.3 billion has flowed into bond
funds, whereas only $21.4 billion has been allocated to equity funds thus far.

My Comments On Other
Developments

The long-term picture continues to brighten for
the US economy and stock market. This week’s positive non-manufacturing ISM
data, and Intel’s
(
INTC |
Quote |
Chart |
News |
PowerRating)
“higher level of comfort” with business — despite
SARS in Asia — are a further indication that three years of corporate
cost-cutting, aggressive monetary and fiscal stimulus are indeed pulling the
economy out if its multi-year funk. Additionally, today’s better-than-expected
jobless numbers suggest that the poor employment picture, too, may be improving.

Although the economy shed 17,000 jobs last month, office jobs actually increased
by 79,000 — after expanding by  9,000 jobs in the previous month. Also, the
temporary employment component in today’s release rose for a second month, by
48,000 — its largest this year. An upward trend in this grouping is important
as it would indicate that a recovery in employment is under way.  The reason is
that companies typically hire cheaper and more flexible temporary workers before
committing to longer-term hiring budgets. Manpower Inc
(
MAN |
Quote |
Chart |
News |
PowerRating)
, a company
specializing in placing temporary workers was up 2.88% on the day as a result.

On a final note, the Investor Intelligence bull
/bear ratio is currently at 3 – 1 — a ten year high — indicating that the
stock market may be a bit overbought on a short-term basis. But the long-term
picture for the markets continues to improve each day.


Edward Allen