It's the first time ordinary folks have sold during a sustained bull market since relevant records were first kept during World War II, an examination by The Associated Press has found. The AP analyzed money flowing into and out of stock funds of all kinds, including relatively new exchange-traded funds, which investors like because of their low fees.
"People don't trust the market anymore," says financial historian Charles Geisst of Manhattan College. He says a "crisis of confidence" similar to one after the Crash of 1929 will keep people away from stocks for a generation or more.
The implications for the economy and living standards are unclear but potentially big. If the pullback continues, some experts say, it could lead to lower spending by companies, slower U.S. economic growth and perhaps lower gains for those who remain in the market.
Since they started selling in April 2007, eight months before the start of the Great Recession, individual investors have pulled at least $380 billion from U.S. stock funds, a category that includes both mutual funds and exchange-traded funds, according to estimates by the AP. That is the equivalent of all the money they put into the market in the previous five years.
Instead of stocks, they're putting money into bonds because those are widely perceived as safer investments. Individuals have put more than $1 trillion into bond mutual funds alone since April 2007, according to the Investment Company Institute, a trade group representing investment funds.
Selling during both a downturn and a recovery is unusual because Americans almost always buy more than they sell during both.
Since World War II, nine recessions besides the Great Recession have been followed by recoveries lasting at least three years. According to data from the Investment Company Institute, individual investors sold during and after only one of those previous downturns — the one from November 1973 through March 1975. And back then a scary stock drop around the start of the recovery's third year, 1977, gave people ample reason to get out of the market.
The unusual pullback this time has spread to other big investors — public and private pension funds, investment brokerages and state and local governments. These groups have sold a total of $861 billion more than they have bought since April 2007, according to the Federal Reserve.
Even foreigners, big purchasers in recent years, are selling now — $16 billion in the 12 months through September. (...)
The number of shares traded each day has fallen 40 percent from before the recession to a 12-year low, according to the New York Stock Exchange. That's cut into earnings of investment banks and online brokers, which earn fees helping others trade stocks. Initial public offerings, another source ofWall Street profits, are happening at one-third the rate before the recession.
by Bernard Condon, AP | Read more:
Photo: Chris O'Meara
