Global equity flows might have just peaked. Bull markets are driven by new capital: you need more money from more buyers to increase buying pressure so that stock prices rise. However, it looks as though globally investors are tapped out. After months of new capital pouring into the market, global equity fund inflows slowed dramatically in the last week. And not just a little, by a LOT...
This is a MAJOR warning sign to stock bulls that buying pressure is weakening in the markets. Throw in the fact that the Fed is now both RAISING rates and DRAINING liquidity from the markets and there is the recipe for a serious market disruption to hit.
Regarding that latter point. The Fed has now announced that rather than continuing reinvest the proceeds from its maturing debt securities, going forward every month it will let $10 billion ($6 billion in Treasuries and $4 billion in mortgage-backed securities) “come due” and NOT reinvest the money.
Put another way, going forward the Fed will be withdrawing $10 billion in liquidity from the financial system every month.
This amount will increase by another $10 billion next quarter (bringing the monthly withdrawal of liquidity to $20 billion in 4Q17) and another $10 billion the following quarter (bringing the monthly withdrawal of liquidity to $30 billion in 1Q18).
Put simply, according to the current plan, the Fed will be:
1) Withdrawing $90 billion in liquidity in 2017 (three months of $10 billion per month and three months of $20 billion per month).
2) Withdrawing $510 billion in liquidity in 2018 (three months of $30 billion per month, three months of $40 billion per month, and six months of $50 billion per month).
This marks the FIRST time in 8 years that the Fed will not be actively providing liquidity to the US markets. The top for the latest stock market bubble is near??