It looks like investors are finally moving back into stocks | Trading ...

After a few years of strong start-of-the-year rallies followed by spring retreats, investors are finally getting a sustained rally as the market continues to move upward late into the second quarter.

The rally means fund flows are now decisively gravitating to equities, after years of investors parking their cash in?perceived?safe havens such as bonds.

?Strong returns to start off the calendar year have been common since the end of the recession, but sustaining positive sentiment into Q2 has proven challenging,? said Vincent Delisle, an analyst at Scotiabank.??However, this year is shaping up to be different. One reason for the sustained S&P 500 rally has been the positive reversal in equity mutual funds flows, in our view.?

Inflows into U.S. equity mutual funds have hit US$72-billion so far this year. If the trend can hold to the end of the year, it will be the first time flows into equity mutual funds have been positive since 2007.

Of course, all the money into stocks has resulted in quite the rally for the S&P 500. The index is up more than 12% this year, and all sectors have seen gains that range from 9% to 23%.

Despite the run-up, Mr. Delisle still sees more upside.

?Our bias is to stick with a constructive S&P500 view as jobless claims improve, equity flows recover, and valuations mean revert,? he said in a note to clients. ?Although we are witnessing seasonal weakness in U.S. industrial activity and regional PMIs, trends in household confidence and housing still support a pro-S&P500 and U.S. dollar bias.?

The big earnings winners of course have benefited the most from stock inflows. Mr. Delisle points out many of the earnings winners have and continue to be companies that are sensitive to U.S. economic growth, and are thus benefiting from the recent spate of bullish data coming out of that country.

But while Mr. Delisle is bullish on the S&P 500, he?s less bullish on Canadian stocks. He said he expects the S&P/TSX index, which has underperformed others with only a 1.3% year-to-date return, will likely continue to lag behind the S&p 500 this year.

Source: http://business.financialpost.com/2013/05/22/it-looks-like-investors-are-finally-moving-back-into-stocks/

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