July Markets: The Running of the Sheep

by: Todd Kenyon, CFA

Sheep_racingsm It's official, the oft-repeated yet chronologically irregular spectacle, "The Running of the Sheep" has once again begun on Wall Street.

Although not as well known as Pamplona's "Running of the Bulls", the ROTS is no less dangerous, as "investors" (i.e., sheep) trample each other to pile money into, or in other examples, pull money out of the stock market at what has historically proven to be EXACTLY the WRONG TIME.

As recently as 5 months ago, the market was at absolute low levels not seen in more than a decade, and at low valuation levels not seen in a generation. Yet "investors" climbed over each other to pull money out of this arguably dirt-cheap market. Today we get word that equity fund inflows this week have been HUGE - the largest since August 2007, shortly after which the market peaked, followed by a sickening plunge.

Now that the market has run up some 46% since the last Running (away) of the Sheep, the wooly stampede has reversed direction. Will the carnage be just as bad this time? History says yes...