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The wall of worry is high for the small investor.  The latest fund flow data showed the 5th consecutive month of outflows from equity mutual funds.  This data rhymes with recent readings from the AAII and the CFTC’s small speculators report.  Small investors hate this rally and remain distrustful of the equity markets.   While this could serve as a continued near-term upward catalyst the long-term implications are far less bullish.

Mark Hulbert at MarketWatch notes how odd this phenomenon is.  Usually, small investors are the ones who chase performance.  Not this time.  The last time investors pulled out of a rally as an economic recovery was occurring was just after the brutal 1974 bear market.  Small investors were so traumatized by the downturn that they continued to remove money from the market for several years.  Inflows didn’t return until 1982 when the new bull market began.

Katana Capital and David Rosenberg continue to argue that this isn’t the beginning of a new secular bull market.  Without the confidence of the small investor they’re likely to be correct.

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