Stock Market: Hold the Door Open, I Can’t Get Out Fast Enough

Stock Market InvestorsSince the beginning of 2015, I have been warning the stock market would fall hard this year. I was so convinced about it, I produced a video called “The Great Crash of 2015,” which has gone out to millions of people. My “2015 Stock Market Outlook” (which was quite negative) that I posted on YouTube in January of this year has been a big hit. It’s still on YouTube at: 2015 Stock Market Outlook by Michael Lombardi, if you want to see it.

Looking at the stock market numbers today, it is truly getting ugly. The Dow Jones Industrial Average is down 1,050 points from this year’s high—about six percent. There’s now a mass exodus going on with investors fleeing stocks. Unless the Federal Reserve starts QE4, the top for the stock market may be in for years to come.

Stock Market Exodus in the Making

According to the Investment Company Institute, in the first six months of 2015, long-term U.S. stock mutual funds have witnessed outflows of $53.53 billion. Looking at the weekly data from July, it looks to me that outflows hit $27.79 billion for the month. (Source: Investment Company Institute, last accessed August 7, 2015.) To give some perspective on this, these mutual funds saw net inflows in both 2013 and 2014.

The bulls may look at mutual funds’ outflow data and say “It’s only the retail investors exiting,” and think there’s nothing more to it. But, sadly, when we look at institutional investors, they are getting nervous, too.

Please look at the chart below of the National Association of Active Investment Managers Exposure Index. It shows the percentage of U.S. stocks active money managers hold in their portfolio.

NAAIM Exposure Chart

Chart Courtesy of

Back in just February of 2015, active money managers’ portfolios consisted of almost 100% stocks. Now it’s near 60%. This is a roughly 40% decline in their U.S. stock holdings in about five months. The last time their stock holdings were this low was back in October of 2014.

Where Is Key Stock Index Headed Next?

With all this, what’s interesting to note is that fear hasn’t really kicked in among investors. Look at the chart of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), often referred to as the “fear index,” below.

Volatility Chart

Chart Courtesy of

The fear index currently sits at one of the lowest levels since 2007—suggesting that investors are still too optimistic about the stock market.

When I look at all this; on one hand we see the mass exit from stocks, and on the other hand we see the VIX remaining at historically low levels. This tells me that investors are really not worried about the recent mini-crash in U.S. stocks. This is a big mistake.

Mark my words: once investors’ losses from stocks start to mount, more of them will be running for the door. But they won’t be able to get out fast enough.

Going back to that video, “The Great Crash of 2015,” I give six reasons why stocks will crash. If you haven’t seen it yet, please see it here now.