From time to time a headline strikes us as an especially fraught suggestion that the investing herd is buying or selling en masse, often quite late in whatever the latest game might be. In Monday's Wall Street Journal, Shefali Anand came up with a classic of the genre: "A Taste for Risk--Again." Here's how the story opens:
It's amazing the difference a rally can make in investors' appetite for risk.
A few months ago, mutual-fund investors were yanking money out of stocks and high-quality corporate-bond funds and parking it in safer places, like money-market funds and U.S. Treasurys. Lately, however, as stock and bond markets have rebounded, mutual-fund investors have had a split personality.
They're back to buying relatively safe investments like high-quality corporate bonds. But they're also pouring money into the riskiest investments. They're lukewarm toward U.S. stocks but plunging into high-octane vehicles like emerging-market companies, commodities and junk bonds--making these among the 10 best-selling mutual-fund categories this year.
Unfortunately, the story doesn't deliver enough compelling data to get our contrarian hackles all the way up, but it's one of those things that gives us pause.
And here's another ingredient in our current caution. In the chart below, you'll see how the 20-day moving average of the S&P 500 (the red line) provided support on two key occasions during the rally off the market's March lows (especially on April 20th/21st and throughout mid-May). Then on June 15th the S&P closed right on the 20-day, broke below it on the 16th, and bumped its head on it at the start of July. In addition, the 20-day has rolled over.
In the relatively short term, we don't make much of moving average crossovers, but we've certainly noticed that the 20-day is now moving lower for the first time since the middle of March.
None of this is to say that the rally can't or won't re-ignite. But the Summer's burden of proof may have shifted from the bears back to the bulls.
Shefali Anand, "A Taste for Risk--Again," Wall Street Journal, July 6, 2009