(Bloomberg Businessweek) — The U.S. stock market in 2019 has exploded, with the S&P 500 index rising 18 percent and the total market adding about $5 trillion in value. Clearly, it stands to reason, superconfident investors are diving in and buying stocks with both fists. Well, not exactly.

In fact, money has been leaking from stock funds all year. Investors have pulled $134.2 billion from global equity mutual funds, according to a Goldman Sachs Group Inc. analysis of data on fund flows from EPFR Global. Of that, $56.4 billion has been yanked from U.S. mutual funds, a drawdown that’s been only partially offset by $16.3 billion that’s flowed into U.S. exchange-traded funds focused on equities.

The reason? Some see it as part of a long-term trend of aging individual investors gradually shifting into safer investments such as bonds. “We’ve seen a steady grind of redemptions from U.S. equity funds that we—and managers—attribute to retiring baby boomers,” says Cameron Brandt, director of research at EPFR. Bursts of bull market exuberance can sometimes overcome this gravitational pull. But right now, deep into an economic recovery and a long market upswing, regular investors may feel more cautious. “It’s hard to believe the current cycle isn’t close to rolling over, so cashing in gains as they come makes basic sense,” Brandt says.

If individuals aren’t enthusiastic, who’s buying stock and pushing prices up? It’s impossible to know precisely, but one set of usual suspects is clearly doing a lot of the heavy lifting: corporations themselves. They’ve had plenty of profits in recent years, which have been boosted by federal tax cuts, and have used a chunk of them to buy back their own stock. Share repurchases rose 22 percent in the first quarter, to an estimated $270 billion, according to Bank of America Corp., easily eclipsing the amount of money withdrawn from mutual funds. That companies don’t see more opportunities to invest in their actual businesses—say, in factories and research and development—instead of shares may be a bad omen for growth, but for now it’s keeping the party going.

The split between regular investors and corporations could widen in coming months. Experience shows many folks heed the old stock market cliché “sell in May and go away,” according to Sayad Baronyan, EPFR’s quantitative analyst. Inflows into equity funds tend to be noticeably weaker from May to October compared with the rest of the year, with the median net flow of cash at around zero, Baronyan wrote in a blog post.

To some Wall Street contrarians, outflows amid a market rally are encouraging. Excessive flows into equity funds would suggest the type of Main Street exuberance for stocks that makes professional investors fear a climactic market top is approaching. Bank of America-Merrill Lynch strategists, for example, say they won’t get bearish until they see “greed shoots”—a wordplay on the green shoots of growth that economists spot at the beginning of an economic recovery.

The market turmoil at the end of last year left the investing public, and hedge funds in particular, wary of allocating too much of their portfolios to stocks, according to Julian Emanuel, chief equity strategist at brokerage BTIG. Because hedge funds are less transparent than mutual funds, their collective appetite for equities is hard to quantify in real time, but movements in indexes that track their performance suggest hedge funds, too, haven’t been enthusiastically chasing the stock rally. That resistance could be another good sign. “In the typical endgame of any bull market, you see a degree of mania come in,” says Emanuel.

The 10-year bull market in stocks hasn’t yet seen that sort of manic phase, he says, though it came close in January 2018. Then, after the S&P 500 had just put a 22 percent return on the books for 2017, euphoric investors pushed it higher by an additional 7.5 percent in about the first three weeks of the year. A fierce correction followed, with the index sinking 10 percent in two weeks. “That was, in our view, a dress rehearsal of something larger to come,” Emanuel says. But not just yet.

A bit more drama could enter the picture soon. Senator Chuck Schumer (D-N.Y.) and his presidential candidate colleague Bernie Sanders (I-Vt.) have proposed limiting buybacks for companies that don’t meet certain obligations to employees, such as paying all workers at least $15 an hour. Such talk could actually encourage more repurchases as corporations try to get them done while they can. The “threat of populist policies in the 2020s to reduce buybacks and inequality will likely increase buybacks in 2019 as corporations rationally front-run populist policies,” Bank of America-Merrill Lynch strategists wrote recently. While it’s possible that a serious threat to buybacks could become a stumbling block for the bull market, it may be just another brick in the fabled “wall of worry” that markets climb on the way up.

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net

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