Bravos Research: Please Don’t Be Dumb Money
Over the past three months, investors have moved $150 billion into stock ETFs and mutual funds. That’s a rapid increase, and is the highest pace since late 2021.
It’s also a shift from money leaving equity funds in 2022 and even early 2023. Overall, it’s a sign that investors are increasingly bullish on the stock market. Particularly, retail investors are driving this shift in capital into stock ETFs and mutual funds.
However, that’s not necessarily a healthy sign for the economy. It could be a sign that retail investors are going all-in. If that’s the case, the timing isn’t the best. The market has been in rally mode for over two years now.
With the S&P 500 up over 26% in 2024, it’s an above-average year for stocks. But market earnings haven’t been growing as fast. Today’s investors are paying an average of 24 times earnings for stocks.
Typically, a reading of 20 times earnings is considered more than fairly valued.
While not yet as expensive as in late 2019, it’s possible that markets are more likely closer to the end of a rally than the start. And that some large pullbacks could be in store along the way.
That means that today’s investors shouldn’t be shifting more capital to stocks. Instead, they should be taking some profits and thinking just a bit more defensively.