September Money Flows, Sentiment Indicators

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September Money Flows, Sentiment Indicators

Today we have three data-driven thoughts on where US investor/consumer sentiment currently sits:

First up, one of our favorite Wall Street/Main Street indicators: the number of US Google searches for “dow jones”. This is a great contrarian indicator, because when volumes spike by 5-10x in a short period of time you know sentiment is bad enough that an investable bottom is nearby. And when searches start to trail off, consumer confidence usually rises.

Here is that chart from 2019 to the present, with this year’s peak highlighted:

Takeaway: the high point for “dow jones” searches was just days before 2020’s March 23rd lows, and after a long period of elevated search interest (all the way through early October), the most recent data shows a return to normal/complacent levels. This is good news.

Next, let’s look at retail/institutional money market fund balances as a proxy for individual and corporate/fund manager sentiment (retail in red, institutional in blue, data for the week ending March 25th in the highlight box):

Takeaway: in both cases cash balances remain elevated versus pre-recession (gray bars) levels. As the 2008 – 2009 experience shows, this is the usual pattern after an economic shock and capital invested here tends to only dribble out slowly once investor confidence improves. If you are bullish and a fan of the “dry powder to invest” theory of capital flows, this is your chart.

Finally, we’ll take a look at the latest Investment Company Institute money flow data for mutual and exchange traded funds, which just came out today for the period ending September 30th:

  • To baseline this discussion, we will remind you that US equity fund money flows are reliably negative, month in and month out, and have been so for years. That’s why the 2010 – 2019 move in US stocks was so often called “the most hated bull market of all time”.
  • That said, September was a pretty good month for US equity fund flows. They only lost $17.8 bn of assets from outflows, much better than August’s $46.5 bn of outflows and July’s $57.7 bn in redemptions. In fact, September was the “best” month for US equity money flows since April’s rare $2.7 bn of inflows.
  • Fixed income fund inflows were sluggish, at $38.3 bn in September versus $85.6 bn in August and $98.4 bn in July. The weakness was both in taxable and muni bonds and (we assume) reflects investor reluctance to dedicate fresh capital at very low rates.
  • The most remarkable shift in September’s money flow data belongs to commodity funds (mostly precious metals), with just $1.4 bn of inflows versus $3.7 bn in August and $8.8 bn in July. Also, last month’s flows were barely a tenth of April’s $13.1 bn.

Takeaway: the ICI money flow data threads the sentiment needle of what Google Trends reveals (general complacency is back) and the money market balance information (cash is still king). Fund investors slowed up on US equity redemptions, are waiting to see if rates climb, and have lost a bit of their fascination with precious metals. A mixed message, but it does not strike us as bearish.

As a final point, September’s weekly money flow data did not betray any noticeable selling in US equities as a result of former Vice President Biden’s recent climb in the national Presidential election polls. The final week of the month (ending 9/30) had only modest outflows ($908 mn) and the prior 3 weeks flip-flopped between inflows and outflows. If investors do grow concerned that a Biden victory will lead to higher capital gains tax rates and choose to sell ahead of any change, mutual funds will certainly be the first place to look for such activity. Many investors there have not just years, but decades, of capital gains. We’ll keep watching the weekly ICI data to see what develops in the weeks ahead.