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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (581)	11/10/2000 3:12:34 PM
From: Erik T	Read Replies (2) \| Respond to of 74559

Here is an interesting article. About one-third of the way down it shows the relationship between mutual fund inflows and increase in market cap of the stock market for the last several years. bearmarketcentral.com "How can a bear market occur with all the money flowing into mutual funds? This is a common, widespread question, and you're right, we should revisit this myth. A simple answer would be, "In the same way the bear has wiped out $2 trillion in wealth over the past 10 weeks in spite of net mutual fund inflows." Stocks don't rise on mutual fund inflows... they rise on soaring expectations. For every $1 that goes into a mutual fund and the fund invests in a stock, someone else must sell that $1 of stock. Money doesn't flow "into" or "out of" the market except in the case of new issues, secondary offerings, or cash takeovers. Money flows through the market - and it's rising or falling expectations that drive stock prices. Proof lies in historical fact. The chart below shows the cumulative inflows into equity mutual funds over this past bull market - a total of $1,287 billion. It also shows how much the market has increased in capitalization - $10,711 billion. It's a fallacy to think that $1,287 billion created the entire $10,711 billion increase in stock value. The majority of that increase came in rising valuations fueled by soaring expectations." Erik