Context Required: Mom & Pop vs Professional Investors

This morning, I want to direct your attention to a Bloomberg News article titled “Individuals Pile Into Stocks as Pros Say Bull Is Spent..” It is a worthwhile read, but a bit of context is required.

The article notes that Main Street and Wall Street are allocating money in diametrically opposed ways:

“Individual investors are plowing money back into the U.S. stock market just as professional strategists say gains for this year are over. About $100 billion has been added to equity mutual funds and exchange-traded funds in the past year, 10 times more than the previous 12 months, according to data compiled by Bloomberg and the Investment Company Institute.”

At the same time, various big-name forecasters are predicting the “stock market will be stagnant.” They further observe “valuations are at four-year highs.”

Individuals pile into equities while the pros pull out? The knee-jerk response is to run for the hills, or Treasuries, or whatever your favored disaster trade might be.

Unfortunately, it is never quite that simple. A little bit of context explains why neither of these indicators is of much significance.

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