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Wednesday, January 30, 2013

Individual Investors Help Drive Stock Surge

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Investor-Relations-auf-Facebook (Photo credit: koesteran)
 New York, Jan.30, stock investing .- Small investors are jumping back into the stock market after abandoning it during the financial crisis.
The return by individual investors is a big reason why the Dow Jones Industrial Average is pushing toward an all-time high. On Tuesday, the Dow rose 72.49 points to 13954.42, its highest close since October 2007. The Dow has surged 850 points in January, a 6.5% gain, marking its best start to a new year since 1989.
Big and small investors breathed a sigh of relief when Congress and the White House worked out a deal to avoid the worst of the so-called fiscal cliff, and some hedge funds and traders unwound bets that stocks would fall because of the year-end expiration of tax cuts and fiscal stimulus.
Also lifting the overall market are some corporate earnings that have been stronger than expected. The possible buyout of computer maker Dell Inc. has sparked optimism about a revival of deal making by companies that are flush with cash, and has shown bond investors more willing to take on the risk of backing big deals.
Many analysts and strategists say individual investors are providing another source of fuel for the stock market. One piece of evidence: A total of $6.8 billion shifted into U.S. stock mutual funds in the first three weeks of 2013, according to mutual-fund tracker Lipper Inc. That is the biggest move since 2001.
"Looking at the news every day, there seems to be more of a consensus that things are getting better," said Jack Stokinger, a 65-year-old retiree in Sudbury, Mass. He still is cautious but feels good enough that he said yes when his investment adviser recently suggested bumping up exposure to stocks and scaling back on bonds.
At Mayflower Advisors in Boston, financial planner Lawrence Glazer is hearing from clients interested in putting money in stocks. Many of the investors are getting the money from bonds or certificates of deposit that are maturing, and confronting the reality of interest rates having been pushed to historic lows by the Federal Reserve. "They bought the CD at 5%, it's come down, and now their choice is to reinvest it at 2% or to shift that money to stocks," said Mr. Glazer.
Of course, the long slog back from the Dow's crisis-era low of 6547.05 in March 2009 has included spells when individual investors warmed to stocks, only to turn away again. In the first four months of 2011, U.S. stock mutual funds attracted about $57 billion. Investors withdrew about $150 billion in the second half of the year. As recently as December, there was $55 billion in outflows related to fears about the fiscal cliff.
Some analysts say a bigger move into stocks isn't likely until investors feel pain from losses on their bond portfolios as yields rise and prices fall. So far, the Fed has shown little interest in letting interest rates rise, and the central bank is sticking with its policy of aggressive, open-market bond purchases aimed at juicing the economy.
Another problem: Many investors remain gun-shy on stocks. Two bear markets in the past decade battered retirement and brokerage accounts, while uncertainties abound despite easing fears of meltdowns in Europe or Washington. "There's still a lot of fear out there," said John Longo, investment strategist at MDE Group, a Morristown, N.J., wealth-management firm that oversees $1.4 billion. "We don't have clients saying: 'Let's get very aggressive.' "
Indeed, a deeper look at recent trends also shows scant evidence of a cooling in the love affair that smaller investors have had with bonds since 2008.
Even as investors have come back to stocks, taxable and tax-exempt bond mutual funds have attracted $16.9 billion of new money in 2013. In fact, tax-exempt bond mutual funds had their strongest three-week haul of investor dollars since late 2009.
Still, bulls are finding reasons to cheer in data showing money headed into old-fashioned, actively managed U.S. stock mutual funds, a class of investments that suffered an exodus of $287 billion from the start of 2009 to the end of 2012.
At the same time, exchange-traded mutual funds focused on U.S. stocks have attracted about $132 billion. ETFs pull in lots of money from big institutional investors, such as fast-trading hedge funds that often are quicker to shift in sentiment than individual investors.
Traditional mutual funds are seen as an indicator of what ordinary Americans are doing with their retirement and brokerage accounts. Chances are that some individual investors also are plowing money into U.S. stock ETFs, said Eric Johnston, head of U.S. stock trading at Barclays.
"The retail investor is clearly a buyer," Mr. Johnston said.
At Heritage Financial Services in Westwood Mass, which oversees $760 million, Charles Bean is shifting about 10% of many client portfolios away from bonds and into stocks.
"We like the stock market right now. Valuations are fair," he said, referring to stock prices compared with projected earnings growth. Meanwhile, "we think the long-term bull market for bonds is for the most part in the rear view mirror."
But a meaningful shift from bonds into stocks may wait until the Fed lets interest rates rise, says Barry Knapp, head of U.S. equity portfolio strategy at Barclays. "Let's face it," he said. "We can't have real losses in the bond market when the Fed is buying $1 trillion worth of U.S. Treasurys and agency mortgage-backed bonds." ...

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