Divergence Alert

Here is an odd disconnect. The latest ICI weekly mutual fund flow data show an accelerating exodus from domestic stock funds, even as most major US stock indexes have broken out of the summer trading range and are in full-on rally mode:

data courtesy of Investment Company Institute

We can take a number of views of this. Certainly one of these is that retail fund investors, often dubbed the “dumb money,” have yet to sign on to this rally. Indeed, they are still piling into fixed income…which is looking toppy (see chart of TLT for example). With Apple shares breaking through the $300 mark yesterday, and mainstream media beginning to take notice, could we finally see the tide turn in the ICI data? It bears watching. If we see the trends begin to reverse, there could be a pretty decent bull run to the end of the year or beyond.


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