Why the Smart Money is Getting Out of Stocks

Despite the Dow’s record setting numbers, experts report that smart money is getting out of stocks. Smart money earned its nickname from making better decisions than average investors, so if those who are in charge of these funds are shifting their investment strategy, then everyday stockholders should consider following suit.

Why is Smart Money Fleeing the Stock Market?

According to Goldworth Financial, the clever folks behind smart money hardly ever share their secrets, so everyday investors can only watch and wait. However, one billionaire investor has made some interesting moves. George Soros abandoned his position with several major financial institutions including Capital One, JPMorgan Chase and Morgan Stanley. He has also decreased his influence with Citigroup and reduced his AIG stakes by about two-thirds. These actions would indicate that he seems to know something about the market.

Besides George, Who Else is Deserting the Stock Market?

It appears that practically all of smart money is on the way out of the stock market. Hedge funds have been unloading them for several months as have institutional clients while private clients started selling them in January. ZeroHedge reports that everyone is selling stock except for the companies. A number of these businesses are repurchasing every share that turns up on the market.

Stocks Have Become Detached from Economic Realities

Throughout the history of the stock market, there has been a close association between stock prices and corporate earnings. Recently, this relationship has broken down. In fact, some experts believe that stocks have become almost divorced from the realities of the economy during the last few months. Tom Kee, the man behind StockTradersDaily, said, “That trend disrupted a formerly symbiotic relationship between earnings and stock prices and is indicating that the blue chip average is in for a substantial pullback.” Stocks had been moving in tandem with the economy until a few months ago.

A correction will occur. If the association between stock prices and earnings were in the right place, the Dow would be around 13,500, which is several thousand points lower than where it has been lately. Investors should be watching for a correction since this type of incident can quickly turn into a crash. The markets in Japan are already starting to fall. Because of this, industry insiders are expressing concern that a crash there will likely affect North America and Europe. In fact, the European Central Bank issued a recent warning that a renewed banking crisis is a possibility.

The Eurozone is seeing a slumping economy while problem loans are suddenly turning up in large numbers. The drawn-out recession hit many borrowers hard, so they’re having trouble repaying their loans. This situation is burdening banks. Smart money could be making changes because of the market’s volatile conditions.

Can Only the Strong Survive?

Late last year, 89 of the country’s 2015 top performing stock funds were large-cap funds. This means that these stocks were from companies valued at more than $5 billion. Investors.com reports that the reason for the growth in large-cap funds is due to investors believing that only companies with extensive resources are able to scrimp out gains. David Joy, a lead market strategist for Ameriprise Financial, said, “Growth was harder to come by. In that environment, investors gravitate to stocks where they presume growth will be more visible. And, they’re willing to pay a premium for growth when it’s hard to find.”

The top performing fund was Polen Growth Institutional, which ended 2015 at $853 million. Nike, Visa and Starbucks were also high performers, but technology saw the most gains. This is where smart money invested last year. Smart money could be pulling out of the stock market to hold onto profits, or those in charge may suspect that a correction is imminent.

Is the Future as Murky as it Seems?

With smart money bailing on stocks, everyday investors are surely contemplating their next move. Jurrien Timmer, a division director for Fidelity Investments, made a prediction about the 2016 stock market. He said, “Essentially, it will be a repeat of 2015.” His forecast seems clear about the future. However, he also cautioned investors by reminding them that this prediction does not include the risk of oil staying low. If it does, the energy sector will be unable to rebound, and this could have a major impact. Smart money’s recent abandonment of the stock market should give everyone pause and encourage them to reassess their portfolios. For more information about smart money, visit the PersonalMoneyStore.com.

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