Why do the markets continue to head higher and higher? Where is all this new money coming from that continuously buys more and more? This is a question that the novice investor continues to struggle with. How can there be that much money to fuel 9 years of nothing but buying.
Looking back at the markets, specifically over the past few years, many are left wondering how there can be so much strength. With little to no pauses, or pullbacks, the markets just continue to run up. Recently the markets have entered what seems to be a new phase of rally, where bad news is great news, and even the smallest of intra-day dips is immediately bought up. Day after day traders notice these small dips, or adverse news events cause more buying not selling.
The truth is that the amount of new money that has entered recently is very little. Sector rotation is one of the main, driving factors between this most recent rally, and it is more obvious than ever thanks to ETF's. Keeping a small list of ETF's that are sector, and commodity based you can quickly see money moving out of one area and into another.
Take big cap stocks for example. The most recent rally has money leaving from tech names and moving into the big cap names. You know the names. Those names that are normally slow and boring have suddenly rocketed to new highs and continue to push higher.
Money moving from one sector to another can give the appearance of new money entering the market, and cause the retail investor to add some more risk to their portfolios. Watch carefully and you can see the money moving around from one place to the other. It's not a bad thing, it's just whats happening at this point. With no pullbacks at all there has been no reason for anyone to move to cash. Until that day comes we will likely see the same sector rotation over and over again as investors continue to chase those returns.