The Great Rotation has been delayed due to lack of interest

It was a good theory. Panicking investors moved billions or trillions of dollars into bonds during the height of the U.S. Financial Crisis of 2008 - 2009. Although the U.S. stock market bottomed on March 9, 2009 with a -57% loss compared to its 2007 highs, stock markets roared back with a vengeance and kept going. But what about the Great Rotation back into stocks?

By all appearances, the “mom and pop” investor never really came back to the stock market and either hoarded cash or continued to plow money into the perceived safety of bonds even as the stock market rocketed upwards. Most likely stayed on the sidelines for the last five years and did not invest at all.

Towards the end of the year in 2013, stock markets were at all time highs despite the absence of the “mom and pop” investor [1].

So who or what have been driving these markets to about 30 all-time record highs so far this year? Certainly, it does not seem to be the retail client that is driving these markets to new highs.

Institutional buying? Pension fund buying? Mutual fund buying?

Quite likely all of the above.

What will be the spark that will finally ignite the retail investor’s interest to invest in the equity market once again?

Perhaps it will be investors’ 2013 year-end statements that might provide that spark. Chances are that many stock-based mutual funds will show some eye-popping returns that far exceed the expectations of their owners. With interest rates still close to historic lows, interest in mutual funds (containing stocks) could certainly pick up in a hurry.

Some caution should be exercised however. We have not had any significant stock market correction for a long time. Market volatility in 2013 has been subdued and is at low levels. The market will of course, experience some sort of market pull back. If you missed the big run-up in prices over the last five years and have money to invest right now, what are you going to do?

Need market strategies to get back in? Please call me at 519.744.3020 or email me at gszlagowski@assante.com .

[1] The use of the term “mom and pop investor” is more commonly used in the U.S. In Canada, the individual investor is usually referred to as a “retail investor”.