A Golden Undercurrent: Funds Quietly Fleeing Stocks for Gold

A record number of investment professionals now think U.S. stocks are too pricey.

That’s according to the most recent Bank of America Merrill Lynch Global Fund Manager Survey. More than 80% of fund managers said U.S. stocks are overvalued, the most in the history of the survey.

The results show institutional investors — the big money — are starting to back away from the market.
Managers of vast sums haven’t been this underweight on stocks since January 2008.

Their main reasons?
Current valuations and political uncertainty were at the top of the list, the latter of which includes the lofty ambitions and rhetoric of the president but his lack of achievement so far.

With markets at all-time highs on tepid earnings and anemic economic growth… they need another shot of juice to keep going. Fundamentals ain’t cutting it no more.

Indeed, price-to-earnings for the S&P 500 are at their highest levels since 2004. U.S. gross domestic product is stuck at 2% — at best — which is the slowest recovery rate from a recession since WWII.

The market is looking to Trump for some sort of jolt, be it tax reform or deregulation or new trade deals or an infrastructure stimulus, that may never come.

Along with a deterioration of confidence in the administration’s ability to get things done, so too will the markets deteriorate.

According to EPFR Global, the #1 provider of fund flow and asset allocation data to global financial institutions, retail redemptions hit their highest level in 13 months in March. EPFR also said investors pulled $9 billion from U.S. and European equities late last month as well.

At the same time… flows into conventionally safer market sectors like gold funds hit a five-week high.
But here’s the thing… this rotation away from stocks and toward safe havens has actually been going on for longer than Trump’s been in office.

As of August 2016, Reuters reported that U.S. equity mutual funds had suffered 22 consecutive weeks of net outflows.
Global investment management company BlackRock reported that it suffered $288 billion in withdrawals from actively managed U.S.-based stock funds in 2016 — the largest number of withdrawals on record.

To put that in perspective, that tops the $218 billion worth of outflows seen back in 2008, in the midst of the most devastating financial disaster since the Great Depression — and just before gold took off to record highs.

Nick Hodge
4/27/2017