A Few Quick Thoughts.

Thought 1:  People are always looking for contrary indicators that the last person is "in" the markets and thus a top is in place.  This headline yesterday from USA Today....

.....along with the commercial run by a certain financial insurance giant that admonishes us that "It's time to start investing again" might qualify.  The counter argument to that is we still see massive amounts of money flowing into bonds.  This is what Lipper {a company that among other things tracks money flows into the markets} said about money flows in the latest reported period, the week of 05.22.13:

For the week ended 05/22/2013 ExETFs - All Equity funds report net inflows totaling $2.469 billion, with Domestic Equity funds reporting net inflows of $0.472 billion and Non-Domestic Equity funds reporting net inflows of $1.997 billion... ExETFs—Emerging Markets Equity funds report net inflows of $0.840 billion...  Net inflows are reported for All Taxable Bond funds ($3.206 billion), bringing the rate of inflows of the $3.852 trillion sector to $6.798 billion/week...  International & Global Debt funds posted net inflows of $0.552 billion...  Net inflows of $1.839 billion were reported for Corp-Investment Grade funds while High Yield funds reported net inflows of $0.376 billion…  Money Market funds report net inflows of $15.422 billion…  ExETFs—Municipal Bond funds report net inflows of $0.053 billion.  

So by my calculation using these figures, roughly 2.5 billion went into equity funds with non-domestic funds taking in about 2 billion of that.  Meanwhile all bond funds reported inflows of just over 6 billion dollars and money market accounts took in nearly 15.5 billion.  Ex out the money markets and that means that for every dollar that went into equities, $2.40 went into bonds.  I'll believe a long term top is in when these bond and equity numbers reverse themselves.  Notice also that the majority of those dollars invested in equities went abroad.

Thought 2:  Speaking of that above mentioned financial insurance giant, "the one telling us it's time to start investing again", I hope they were telling us the same thing back in 2009 as the market is up about 140% since then.

Thought 3:  The fact that I'm saying that these indicators have a higher probability of not being the end of a cyclical bull market doesn't mean that we won't see a correction or corrections over the next several   years.  In fact it wouldn't surprise me if we didn't enter a corrective phase sooner rather than later.  Here's a couple of reasons why it might occur:

1.  Markets are very over bought in the longer and intermediate time frames we measure.

2.  Stocks have run up over 20% since last November.  A move of that length and duration at some point needs to take a breather.

3.  Rising interest rates could at some point put a short term lid on the advance.

4.  Seasonal factors.  I know we've beat the seasonality thing to death and also discussed why it might not occur this year, but it's hard to ignore the fact that we have now entered the teeth of that period and harder still to ignore the fact that Wall Street will slow down as summer beckons.  This will become more pronounced after July 4th through Labor Day.

5.  Any hint from corporations that the 2nd half of the year will be tougher going than Wall Street currently expects.  We're going to get a look into that over the next six-eight weeks.  Companies that know for sure that things are tough will likely begin pre-announcing such news in the next two weeks or so.  Then we have earnings after June 30th.  

Now for the record I'm not saying for sure that a correction is coming.  I'm just saying that it wouldn't surprise me if it occurs.  Also remember that stocks can correct by time as well as price, meaning that it could be we get to Labor Day and stock prices are more or less right where they are now, having basically done nothing in the intervening months.  Only time will tell.  We'll have the defensive pages of the playbook handy in the event we begin to get more nervous about things.

Thought 4:  Rising interest rates.  Quietly in the past month interest rates have begun to creep higher.  Expect to hear more about this if this continues.  Low rates have been the mother's milk of this rally and the economic recovery.  In the event we're seeing signs that the low interest rate era is over, then we could be entering a new dynamic phase of the markets.  My thoughts on this will have to be in another post.  However, I do wonder about all that money that's still pouring into bond funds in search of yield.  I looked at the prices of a few popular bond funds these last few days.  The average of these is down nearly 2% for May so far.  That's a huge decline in a low interest rate environment.  Something to ponder as we likely sit near generational interest rate lows.  Again,  more to come on this in the event rates keep going higher.

Oh and for what its worth, the Chicago Blackhawks played one heck of a game last night, coming from sown 3-1 in their series against the Detroit Red Wings to capture a very exciting game 7!