Michael Santoli on What it Will Take to Bring Investors Back to Stocks

Free lap dances, that should do it.

No just kidding.  In Barron’s this weekend is Michael Santoli‘s take on the latest Death of Equities dust-up in the media and what retail investors may need to see before they dump their bonds for stocks:

It’s a stale observation by now that Main Street prefers bonds. Something like a net $1.4 trillion swing in money flow from stock to bond mutual funds began in 2007, not last month. The notion that such a preference is likely to reverse before long, simply because it’s gone this far for this long, is sketchy. This is the common but untrustworthy “cash from the sidelines” reasoning.

Such a shift from a state of risk aversion brought on by two 50% market drops in a decade and more scandals and scare headlines than you can count, won’t occur spontaneously, no matter how many uninformative charts tracking Treasury yields versus earnings yields are waved in the air. For the last year, headline-fearing, stock-avoiding households have done just fine. Maybe the bond holdings they consider “safe” will have to produce losses for them to reconsider their stance, suggests Jason Trennert of Strategas Group. But that could take a while.

A longer, calmer climb in the market is likely what will be required. Currently, the 10-year trailing annualized return (excluding dividends) has risen from below zero to a bit over 2%, a level and trajectory that in the past has implied pretty good multi-year returns to come. Upon request, Strategas calculated that if the S&P is at today’s level on Oct. 9, the tenth anniversary of the 2002 bear-market low, the ten-year trailing return would be 5.5%. That’s similar to post-bear periods in the late ’40s and late ’70s — decent times to lay patient bets on equities, but not the start of bull-market manias.

The mean reversion guys are always too early, there’s not going to be any imminent rush into equities no matter how long the dissatisfaction has gone on.  In fact, I could make the case that the Boomers are done with stocks period and that the next sustained wave of fresh investment capital flowing in will have to come from Gens X&Y and the Millennials.


The New Death-Of-Equities (Barron’s)