Foreign buyers’ spree comes after several years of pulling money out of American shares Traders at the closing bell of the New York Stock Exchange on Thursday, when the Dow industrials closed at over 24000. PHOTO: DREW ANGERER/GETTY IMAGES By Michael Wursthorn and Riva Gold Updated Dec. 3, 2017 8:31 a.m. ET 8 COMMENTS Foreign-investor money is pouring into the U.S. stock market at the fastest clip in years, ending a long period of selling and providing a fresh boost to a more than eight-year rally. Overseas buyers have pumped $66.4 billion into U.S. stocks this year through September in their biggest buying spree since 2012, according to the most recently available data compiled by Deutsche Bank. Foreign buying was particularly robust heading into the fall, when investors bought $26.3 billion of stock in September. This foreign interest marks a sharp reversal after four straight years of outflows, when these investors yanked billions of dollars out of shares of U.S. companies. Growing foreign-investor interest in U.S. stocks has helped keep the long rally going, despite concerns this year over policy gridlock and valuations that some say look stretched. The Dow Jones Industrial Average last week powered through 24000, notching its fifth major milestone this year on renewed optimism about a tax cut and faster economic growth. The Dow edged slightly lower Friday after falling more than 350 points earlier in the session following reports that former national security adviser Michael Flynn was cooperating with the special-counsel probe into potential links between the Trump campaign and the Kremlin during last year’s election. Gains throughout the month still pushed both the Dow and S&P positive for an eighth consecutive month in November. And there are signs that foreigners aren’t done buying. Allocations to U.S. equities among global fund managers recently surveyed by Bank of America Merrill Lynch rose in November but remain below the historical average. “We’re very much making the case to our clients to have more exposure to the U.S. market,” said Michael Russell, a portfolio manager in London for Hermes Fund Managers. After focusing on emerging markets this year, Mr. Russell said a strong U.S. economic and corporate backdrop support putting more money into U.S. stocks, especially financial stocks that can benefit from deregulation and an improving economy. Turning AroundForeign investors are piling into U.S. stocks following several years of withdrawals, helping to propelmajor indexes to fresh highs.Foreign investor flows into U.S. equitiesTHE WALL STREET JOURNALSource: Deutsche Bank .billion2007’08’09’10’11’12’13’14’15’16’17-40-30-20-100102030$40 Overseas investors could become an increasingly important factor for the U.S. stock market at a time when other drivers of the long rally have been fading away. Corporate buybacks peaked in 2015 and have been falling since. U.S. stock mutual funds have been experiencing steady outflows, and aging baby boomers have been pulling money out of stocks in favor of safer investments like bonds as they approach retirement. Even with their recent buying, foreign investors own only about 14% of the U.S. stock market, according to a report compiled last year by the Treasury Department and Federal Reserve Bank of New York. But analysts closely track foreign purchases, in part because they have signaled a market top in the recent past. Overseas buying peaked in 2000 and 2007, with foreign investors piling into the U.S. market just before big selloffs. Some analysts say that could be a result of a “home bias” for foreign investors that creates challenges to swiftly moving in and out of the U.S. market, as well as the fact that the U.S. market tends to be a more defensive place to invest if there are concerns about a global downturn. “That has been the historical pattern and that in itself is worrying,” said Torsten Slok, chief international economist at Deutsche Bank. “As a leading indicator, it is something we are watching.” Still, many investors in Europe, Asia and the Middle East seem to be buying U.S. stocks for much of the same reasons as domestic investors, analysts say. U.S. companies boast some of the best profit growth in the developed world. Stocks in the S&P 500 are on track for earnings growth of 10.8% in 2017, and another 10.7% in 2018, according to CFRA Research. Those numbers could be even stronger if Congress enacts a proposed tax overhaul that cuts the corporate tax rate. By comparison, earnings in the Stoxx Europe 600 increased just 1.7% in the third quarter from a year ago, according to Thomson Reuters data, dragged down in part by a stronger euro that makes exports less competitive and sales to the U.S. worth less when translated back to euros. The weakening dollar, meanwhile, provides a lift to U.S. exports. While growth in Asia, Europe and much of the rest of the world has been picking up, the U.S. economy shows few signs of slowing down. The Commerce Department said Wednesday that U.S. GDP expanded at a 3.3% annual rate in the third quarter, adjusted for inflation and seasonality. It was the strongest quarter in three years and exceeded forecasts. The U.S. stock market “has high quality earnings, a good growth outlook, and a lot of the backdrop is more positive,” said Edward Park, investment director at Brooks Macdonald in London, who has been adding to his holdings in U.S. equities this year. Foreigners’ appetite for bonds, including U.S. Treasury debt, has slowed since last year, according to the data compiled by Deutsche Bank, and analysts expect that much of this cash ends up in U.S. stocks. That is in part because the spread between corporate dividends and bond yields has been narrowing. Dividend-paying stocks in the S&P 500 are currently yielding about 1.9%, according to FactSet, only 0.46 percentage point less than the yield on the 10-year Treasury note. In March, the 10-year Treasury note yield was 0.65 percentage point higher than the S&P 500 dividend average. Higher and rising valuations for U.S. stocks, however, are making some foreign investors pause. The S&P 500 currently trades at 18.2 times forward earnings compared with 16.8 at the start of the year, while the Stoxx Europe 600 has risen to 15 from 14.7 this year. Tokyo’s Nikkei Stock Average still trades at 17.5, exactly where it started in January. “The [U.S.] market is very expensive and earnings expectations for next year are very, very optimistic,” said Markus Stadlmann, chief investment officer at Lloyds Banking Group in London, who has been lightening up on U.S. stocks.
I thought it was free money for US investors...now the entire world is getting free money from US stocks.......best market that never goes down...just keep buying the 7 point pull backs and make free money every single day....Dow 25000 by mid December...26,000 by January! 40,000 by December 2018.....
it means it's time to sell or Wall Street propaganda machine is spreading fake news to get Mom & Pop's money .