It has been nearly a year since the COVID-19 pandemic began, and a significant sell-off plunged the market into the red. Many speculated how the recovery would look, but few predicted how it turned out (as bullish as can be). Over the past year, markets have soared to new highs, and markets have behaved as if nothing happened. Despite the optimism, many analysts have speculated that the market could be in one massive bubble, but most recently, these claims may have just found some evidence.
Within the past few days, Bank of America and EPFR Global data revealed that stocks had inflows of $58 billion during the week of February 10th. In simple terms, inflows are the money received by a company or organization due to its financial activities, investments, sales, and income. According to Bloomberg, such high levels of inflows indicate levels of extreme bullishness. The result of such bullish sentiment may “trigger a sell signal that hasn’t triggered since January 2018,” noted a Bank of America strategist.
Experts have also chimed in on the issue, with Investment Strategist Meghan Shue from Wilmington Trust explaining, “What we have seen from that Bank of America data are record inflows into the U.S. large-cap, in the tech sector, but less attention is being paid to areas that we think offer better potential for future returns.” So, what does this mean for investors? Well, an approach noted by Strategists like Shue explains to avoid what is hot right now; this would mean avoiding meme stocks, cryptocurrencies, and big tech stocks. Instead, Shue explains that buying the dip with U.S. small-cap stocks helps avoid what would likely be hit the hardest by a pullback and capitalize on what has rebound potential.
Do you think a significant market pullback is coming soon and if so, how do you plan to approach it?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.