Equity fund flows are predictive of nothing, they’ve actually had a zero percent correlation to the S&P 500 over the last five years according to research I’ve seen from Credit Suisse.
But equity fund flows do dispel the “euphoria” myth, whereby it assumed that because the Dow is breaking new highs, the nation is deep in the throes of some kind of speculative mania. The truth is, the country is in no mood to celebrate and there is almost no “euphoria” to speak of. People are much more excited about the fact that their home value has stopped dropping, the stock portfolio is almost an afterthought.
Here’s a chart from Ryan Detrick (Schaeffer’s) showing the difference in US stock mutual fund flows, 2007 versus now:
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