Stock Market

In 2009, U.S. stock markets were able to rise despite a substantial fund flow headwind. It's hard to see how mere 'liquidity' could have driven the 2009 rally, as some skeptics claim. At least based on ICI data, U.S. equity fund flows were negative for the year.

Rather, the 2009 rally was probably more the result of sellers becoming unwilling to sell at lower price levels. While buying demand was diminishing, selling demand at lower price levels was probably drying up at an even faster rate. Thus prices had to rise in order to clear the market.

The combination of a rising market with negative fund flows is an encouraging sign for the future. Guess what could happen if fund flows significantly reverse and become a positive tailwind.

Read more at The Money Game.

Note the most recent weekly fund flow uptick:

Longer-term perspective:

Even longer term: