January’s public stampede into stock funds has its own late-1970s parallel. Fund flows follow market action, they don’t cause it. While the thought of hundreds of billions switching from bonds to stocks in a “Great Rotation” makes for great sell-side storytelling, history doesn’t support the public’s ability to pull it off (at least with any profit to show for it). On the other hand, contrarians shouldn’t sell because of this data point alone. Overall, we’d grade the public’s return a mild contrary negative.

This certainly does not lend itself to “The Great Rotation” phenomenon some are spouting about as domestic equity funds capture flows. Contrarily, it appears to be more of the same instead of a change in direction. Last year bond funds averaged net inflows of about $25 billion per month.

After a 50% decline into the September 1974 low, the S&P 500 advanced +121% to a November 1980 cyclical high. The upswing was interrupted by a 19.4% de- cline (1977-78) that was followed by even larger net fund outflows than in the first two years of the bull market. But investors finally capitulated, putting $500MM (then a large amount) into equity funds during the month of the bull market top.

After a 57% decline into the March 2009 low, the S&P 500 advanced +121% to a new high in February 2013. This upswing was interrupted by a 19.4% decline (mid- 2011) that was followed by even larger net fund outflows than in the first two years of the bull market. By January 2013, investors grew tired of watching all the fun and put $22 billion (est.) into U.S. focused equity mutual funds—the first month of net in- flow since April 2011 (not coincidentally, the month of the top preceding the 19.4% decline).