Capital markets are a leading indicator, a sign of investor confidence in things to come.
So what, exactly, are participants trying to tell us about a possible turn?
“401k traders continued to retreat towards safety throughout April,” according to the Alight Solutions 401(k) Index. “April marked the 15th month in a row where net trades favored fixed income funds over equity investments.”
The research and consulting firm reports that in April, on average, 0.014% of 401k balances were traded daily. A (very) small number to be sure, but it’s the length of the trend that’s somewhat unusual.
“Trading inflows mainly went to bond, international, and target date funds, and outflows were primarily from large U.S. equity funds, company stock, and small U.S. equity funds,” Alight notes. “After reflecting market movements and trading activity, average asset allocation in equities increased from 67.9% in March to 68.2% in April.”
New contributions in equities decreased to 67.9% at the end of April from 68.3% at the end of March.
“April saw positive performance for all the common indices. The U.S. bond market ticked just above 0.0%. Large U.S. equities rose 4.1%, small U.S. equities rose 3.4%, and international equities gained 2.6%.”
Trading activity
A “normal” level of relative transfer activity, according to Alight, is when the net daily movement of participants’ balances as a percent of total 401k balances within the Alight Solutions 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.
A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity.
A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.