Average Advance
Investors buying stocks now are entering an advance that is approaching the average five-year duration of bull markets since World War II, according to data compiled by Bloomberg. The S&P 500 has gone more than 100 days without a 5 percent retreat, the longest stretch since February 2007, the data show. The index trades at 16.1 times operating earnings in the last 12 months, the highest since 2010.
“It’s getting late in the day at these valuations, and it’s going to be harder and harder to eke out those returns,” Hayes Miller, who helps oversee about $48 billion as the Boston- based head of asset allocation in North America at Baring Asset Management Inc., said in a phone interview on May 23. “This is going to be a multi-year workout. I wouldn’t want to kid anybody: I don’t think the equity market is going to give us a big blast like it has.”
Economists predict the U.S. economy will expand 2 percent this year, down from 2.2 percent in 2012, according to the median of 83 estimates compiled by Bloomberg. Corporate sales are slowing, as first-quarter revenue contracted 1.2 percent on average for S&P 500 companies, Bloomberg data show.
Bond Preference
While investors are sending record amounts to hybrid funds, bond managers are still getting more. Fixed-income funds took in $82.6 billion in the first four months of the year, adding to the more than $1 trillion that came in the previous four years, ICI data show. Flows to funds that invest in U.S. equities represent less than 5 percent of the $400 billion that came out in the previous four years.
Trading on U.S. exchanges has failed to pick up after falling for the last three years, averaging 6.3 billion shares a day in 2013, the lowest since 2008. While price-earnings ratios are expanding, they remain 17 percent below the average since 1998, according to data compiled by Bloomberg.
The flows into hybrid funds are bullish for U.S. equities because more buyers will lift prices, according to Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees about $180 billion, including those that invest in both stocks and bonds.
Treasury Returns
“Investors moving money into these funds does lead to money going into the equity market in total,” he said in a May 23 phone interview. “A lot of this money will actually be long money,” Zemsky said. “I’m pretty optimistic on the flows continuing into these categories.”
The S&P 500 has returned about seven times more than 10-year Treasuries since the bull market began, according to data compiled by Bloomberg and Bank of America Merrill Lynch. The yield on 10-year Treasuries was 2 percent last week, near the lowest on record, and it hasn’t climbed above 2.5 percent since the middle of 2011, Bloomberg data show.