Eurozone Fears Weigh on ETFs, Confidence

May 20th at 6:00am by Tom Lydon

Investors are still feeling bearish about the stock market, evidenced by large outflows from domestic stock mutual and exchange traded funds. Recent evidence suggests that investors are staying on the sidelines not because of the market volatility, rather, due to deep mistrust of the stock market. [Tom Lydon Talks Markets and Investor Confidence on CNBC]

“American stocks have doubled in price since the market hit bottom three years ago. But trading in the United States stock market has not only failed to recover since the 2008 financial crash, it has continued to fall. By comparison, after the market busts of 1987 and 2001, trading recovered within two years. In fact, going back to 1960, trading had never declined for three consecutive years, let alone four and counting,” the editorial staff for The NY Times wrote.

“Investors are de-risking,” Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Trust Co.said. “They look at a global situation that appears to be degrading, not improving.” [Despite Euro Fears, Stock ETFs are Not Dead]

As leading U.S. economic indicators have weakened and U.S. manufacturing data had a dismal forecast, nine out of ten S&P 500 groups fell. Overall, the S&P 500 has lost 3.9% over the past five days, reports Rita Nazareth for Bloomberg.

Around 16 Spanish banks had their ratings cut by Moody’s Investor’s Service due to economic stress and the government’s budgetary woes. Furthermore, the prospect of Greece exiting the Eurozone is also weighing on market sentiment. The Eurozone debt crisis is a huge catalyst for lower market sentiment and lack of investor faith in a turn around anytime soon.

Restoring investor faith and trust will be necessary for restoring the stock market. As consecutive bubbles have gone bust and the scandals from giant banks has destroyed retirements, financial reform has been unable to keep up with asset outflows. Should the trend continue, fewer companies will issue shares and less investors will put any of their retirement back into stocks. [The Latest ETF Data on Liquidity]

Since the start of 2008, domestic stock mutual funds, a common way for individuals to invest, were drained of more than $400 billion, compared with an inflow of $52 billion in the four years before that, reports The NY Times.

“A long-term peak in the S&P 500 is developing as the gauge diverges from other equity measures, meaning stocks are likely to decline next year,”RBC Capital Markets reported. [Why ETFs Appeal to Traders and Long Term Investors]

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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