Laszlo Birinyi, among the first money managers to advise buying U.S. stocks four years ago, has said the bull market rally is entering a final phase as investors who had previously shunned shares capitulate and buy. The Dow is about one month away from matching the average length of bull markets since 1962, data compiled by Westport, Connecticut-based Birinyi Associates Inc. and Bloomberg show.
Investor deposits with global equity mutual funds in the first week of January were higher than any other period except one, according to data compiled by research firm EPFR Global in Cambridge, Massachusetts, going back to 1996. Money flows into stock mutual funds were positive in January for the first time in 11 months and the highest in nine years, according to data from Washington-based Investment Company Institute. That represents a turnaround after investors pulled more than $600 billion from stock funds in the last five years, ICI data show.
Inflows into stock mutual funds at the start of the year are typical and can often fade quickly afterwards, according to Jeffrey Kleintop, the Boston-based chief market strategist at LPL Financial Corp., which oversees $350 billion.
“It could be a while that we hang out around 14,000 before we definitively leave it behind us,” Kleintop said by phone. “History shows that flows and market milestones have coincided and we consolidated for a while after that,” he said. “Any tone from the Fed that suggests they might take the punch bowl away sometime this year could cause the market to pull back. A big part of the rally to all-time highs has been powered by the Fed’s very aggressive stimulus programs.”
The S&P 500 posted its first weekly decline of the year on Feb. 22 amid increasing concern the Fed will curtail its stimulus program. The Dow posted its biggest gain since June on Jan. 2, surging 2.4% as lawmakers passed a bill averting most of the fiscal cliff. The gauge had the second-largest rally of the year on Feb. 27 amid better-than-forecast housing data.
Eighteen of the 30 largest U.S. stocks are in the Dow. The gauge includes General Electric Co., the oldest member of the average, and Exxon Mobil, the world’s biggest company by market value.
“The Dow is an indicator of sentiment for the blue chip of blue chip, bellwether companies,” Latif said. “It doesn’t necessarily speak to the broader market as a whole.”
Investors may also be lured to companies in the Dow that pay higher dividends, as the 10-year Treasury note’s yield has remained below 2% for most of the year. The Dow’s payout rate is 2.5%, compared with the S&P 500’s 2.15% rate, according to data compiled by Bloomberg. AT&T Inc. returns 4.9% of its share price in dividends, the highest yield in the Dow.
“You’re now entering no man’s land and that’s what sparks people’s imaginations,” William Nichols, senior managing director in equity trading at Cantor Fitzgerald LP in New York, said by phone. “Once stocks and markets start to break out, it’s hard to put a limit on how far they’ll break out.”