Tuesday, 16 February 2010 22:04 Written by James Van de Voorde

Buried in today's Wall Street Journal is an article titled "Investors Finally Warm to U.S. Stock Funds".  The story reporta that investors purchased $2.7 billion of U.S. stock funds and another $8.3 billion of international stock funds in January, the largest monthly inflows into stock funds since December 2007.  Rather than a sign of stock "euphoria", inflows into stock funds remain paltry when compared to bond fund inflows.  Consider that investors continued to pour money into bonds funds in January, with $28 billion net new dollars invested.  Even after the incredible rally off the March 2009 lows and the opportunity to buy U.S. stocks in the midst of their first significant correction since the recovery rally began, bond inflows outnumbered U.S. stock inflows by a margin of 10 to 1.  The fund flow data is another sign that investors do not yet trust the stock market.  This is a wonderful contrarian indicator and suggests that the market has substantial room to convert non-believers.