Stock ETFs Rally As Investors Return To Risky Assets

Includes: DIA, QQQ, SPY
by: Tom Lydon

As the equities market returns to pre-2008 financial crisis levels, more investors are dipping their toes back into stocks and related exchange traded funds.

Main Street investors could be ending their self-imposed exile from the stock market, USA Today reports. Initial data suggests that retail investors are becoming more confident in stocks than they have been in years, and want to take on greater risk with stocks and equity funds.

According to the American Association of Individual Investors, 52.3% of investors were bullish, the highest since January 2011. Meanwhile, the widely observed VIX or "fear gauge" is trading at its lowest since April 2007.

On Thursday, the Willshire 5000 stock index, which follows 3,700 stocks, briefly topped its October 9, 2007 record high of 15,806.69. According to Wilshire Associates, stocks generated almost $11 trillion in gains since the bear market ended in March 2009.

Meanwhile, the Dow Jones Industrial Average and the S&P 500 are only 2.4% and 4.5% shy of their respective peaks.

"Is the retail investor back? Not fully. But they certainly are on the path to coming back," Steve Quirk, senior vice president of TD Ameritrade's Trader Group, said in the article.

"I would not call it a mad rush into stocks or a mad panic to buy, but it is a positive for the market to see retail investors returning," said David Brown, chief market strategist at Sabrient Systems.

Nicholas Sargen, chief investment officer at Fort Washington Investment Advisors, points out that investors are more comfortable with stocks now that the uncertainty surrounding the fiscal cliff and politics has diminished.

Moreover, Americans are feeling like things are turning around, with a rebounding housing market, dropping unemployment rate and greater economic stability.

"People are feeling better," Sargen added.

  • SPDR S&P 500 (NYSEARCA:SPY): up 16.2% over the past year
  • SPDR Dow Jonew Industrial Average (NYSEARCA:DIA): 12.0% over the past year
  • PowerShares QQQ (NASDAQ:QQQ): up 13.1% over the past year

SPDR S&P 500

Max Chen contributed to this article.

Full disclosure: Tom Lydon's clients own SPY and QQQ.

Disclosure: I am long SPY, QQQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.