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Strong Investing Culture Keeps US Equities Bullish

The US equity market is the largest in the world and growing. A strong investing culture bodes well for the growing equity market size as well as for its bullishness.

Following the Federal Reserve’s first indication that it may start removing the asset purchases, the US equity market indices fell, albeit temporarily, as starting with this past Monday, the bullish price action returned.

In fact, the Nasdaq 100 and the S&P500 index reached new highs this week. This is in sharp contrast to what recent cumulative flows to tech stocks show. According to the data compiled based on the last six weeks worth of transactions, the tech market just had its largest outflow since January 2019.

Despite Large Outflows, Equities Remain Bid

While the cumulative flows may pose a bearish short-term picture, the long-term one remains bullish. In the past six years, the Nasdaq 100 index reached all-time highs every single year. In 2017 it reached no less than seventy-two new highs, while in 2021 so far it is fifteen.

One explanation for the strong equity market performance comes from the investing culture in the United States. A quick breakdown of the IRA assets helps explain the phenomena.

IRA stands for Individual Retirement Account, and it was created in 1974. Today, there are over $12 trillion invested in IRA accounts and over forty-eight million households own assets via IRA.

In recent years, the greatest developments in the IRA structure has been in the other assets category. This category includes individual stocks, closed-end funds and ETFs. Also, the mutual funds industry is well-represented in the IRA and growing. All this points to strong and rising interest in the equity markets from the retail investor using the traditional long-only approach.

To sum up, there is a relentless bid behind equity prices from the rising IRA accounts only. The more popular financial markets are, the stronger the bid and the more difficult it is for equities to correct. As such, when shorting equity markets indices, investors should understand the driving forces behind the US equity markets.

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