After the surge in stocks we've seen since the March lows, some investors think the market has come too far, too fast. Many have started to hedge their bets, and some are getting out of the market altogether.
Even while the market was rallying, investors only put $7.8 billion into stock mutual funds from the lows in March until October 19. According to TrimTabs Investment Research, "if this had been a normal market environment, we would have expected a net inflow of at least $150 billion."
More recently, September saw outflows of $11 billion and the first half of October saw mutual fund investors pull $3 billion from stock funds. This occurred despite the month of September being a positive month, when it's historically a down month for stocks.
Some analysts say that investors doing this are going to miss out on additional gains. These analysts say that stocks rise before central banks push up interest rates because stocks anticipate future earnings growth. While central banks raising interest rates is seen as taking the punch bowl away from the party, these analysts say that party doesn't end right when the punch bowl leaves. There can still be a decent rally after interest rates increase.
According to an analysis by Bloomberg, the S&P 500 rose by an average of 8.2 percent in the six months before hikes in the Fed's target interest rate. And in the bull markets that followed, the index rose by an average of 82 percent. The previous reactions of the markets before interest rate hikes led some analysts to say that investors should front run the Fed. Interest rate hikes can be a sign that the Fed believes the economy is strong enough to stand on its own, and that's good news for stocks.
Economists forecast that the Fed will raise interest rates to 0.5 percent -- still historically low -- by the middle of 2010. Then, they predict, the Fed will raise interest rates by 0.25 percent per quarter through the beginning of 2011.
If that's the case, and history is a good predictor of the future, then investors putting their money in stocks now are likely to see gains.
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Even while the market was rallying, investors only put $7.8 billion into stock mutual funds from the lows in March until October 19. According to TrimTabs Investment Research, "if this had been a normal market environment, we would have expected a net inflow of at least $150 billion."
More recently, September saw outflows of $11 billion and the first half of October saw mutual fund investors pull $3 billion from stock funds. This occurred despite the month of September being a positive month, when it's historically a down month for stocks.
Some analysts say that investors doing this are going to miss out on additional gains. These analysts say that stocks rise before central banks push up interest rates because stocks anticipate future earnings growth. While central banks raising interest rates is seen as taking the punch bowl away from the party, these analysts say that party doesn't end right when the punch bowl leaves. There can still be a decent rally after interest rates increase.
According to an analysis by Bloomberg, the S&P 500 rose by an average of 8.2 percent in the six months before hikes in the Fed's target interest rate. And in the bull markets that followed, the index rose by an average of 82 percent. The previous reactions of the markets before interest rate hikes led some analysts to say that investors should front run the Fed. Interest rate hikes can be a sign that the Fed believes the economy is strong enough to stand on its own, and that's good news for stocks.
Economists forecast that the Fed will raise interest rates to 0.5 percent -- still historically low -- by the middle of 2010. Then, they predict, the Fed will raise interest rates by 0.25 percent per quarter through the beginning of 2011.
If that's the case, and history is a good predictor of the future, then investors putting their money in stocks now are likely to see gains.
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