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Market Wrap-up for Mar. 25 - Investors Betting Big on Equities

Despite markets seeming to jostle back and forth this year, the S&P 500 is up approximately 2.5%, falling in line with its historical average. All eyes have remained fixated on the Fed and their long awaited interest rate hike and while there is still no definitive timeline, investors seem to have grown more comfortable with the equity world.

Money Pours Into Equities

Thus far in March, equity-based mutual funds and ETFs have seen inflows of $46.8 billion according to TrimTabs. That is the highest that number has been since October of 2013, and the month is not even over. The result is somewhat surprising, especially given the volatility that Wall Street has grown accustomed to in 2015. But it would appear that recent Fed commentary (which suggests that the rate hike will be delayed even further) has sparked a renewed interest in the equity world.

The current bull run just recently celebrated its sixth birthday, all the while analysts have been calling for a top and a looming crash. The latter scenario has yet to manifest itself. Still, the recent movements into equities is a cause for concern for some, as it can often be a leading contrarian indicator.

Going with the Herd

Generally, the investing world tends to buy high and sell low, though their goal is the opposite. The herd mentality is one that savvy traders try to avoid, as it often leads to losses. This is the reason why some take the recent equity inflows figures as a concern. The feeling is that if that if the market is pouring into equities, this asset class is becoming overbought and due for a correction.

On top of this, after heavy buying, many worry that there is not enough money left to flow into equities to prop up the bull run. But there are others who are not concerned by this indicator.

In a central bank-driven economy, many of the standard and trusted indicators are thrown out the window. Markets are simply too unpredictable (as is the Fed) in our current market environment, which has seen multiple rounds of quantitative easing and ultra-low interest rates for half a decade. Many analysts have adopted the mentality that the markets will move with the Fed, and less weight can be given to indicators and trends that used to be so meaningful.

To put things in perspective, the current market environment is unlike one that we have ever seen in quite an eventful history of investing. Thus far, the only reliable trend has been to follow the Fed and its dedication to keep the economy chugging along.

The Bottom Line

As we have stated in many times before, your goal as a dividend investor should always be generating income over the long-term from a well diversified portfolio. Still, keeping an eye on short-term movements and trends can help you take advantage of markets and perhaps take a new position at an advantageous level. Predicting the market is almost impossible, but you can bet that the short-term will continue to be dominated by the Fed and its commentary.

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