Although there are still hundreds of billions of uninvested cash sit on the sideline, professional asset managers started quietly pulling out the U.S. equity market. Indeed, they have a good reason to do that. The S&P has returned 8.7% so far this year. With the yield on the 6-month Treasury bills at 4.95% and even higher on money market instruments, they can get at a safe return of 11.2% for 2007 by cashing out from stock markets and parking the proceeds in money markets. Not too shabby on the risk adjusted basis.
Think 2006 was a fantastic year for the S&P? It returned 11.78%. Even if someone is genius enough to catch the absolute bottom and top in 2006, the return would be 17.0%. Given the less sunny economic fundamentals that we have observed this year so far, few expect that the S&P would outperform last year. So why not cash out now, get a guaranteed double-digital return, and go enjoying the summer (even the rest of the year)? It seems a no-brainer.
The near-term support for the S&P is around 1480 (25 points below today's close level), but a bigger decline, for instance to 1445 (4% drop),is not impossible.