The ‘smart money' index is doing something unusual right now. Why it could be a buying opportunity.
'Smart money' investors have been buying stocks pretty aggressively lately, even as the market continues to struggle in 2025.
If the recent past is any guide, an indicator known as the 'Smart Money Flow Index' might be flashing a market buy signal, said Jim Paulsen, a market veteran and former top strategist at the Leuthold Group, and before that at Wells Fargo's institutional asset management arm.
My husband will inherit $180K. I think we should invest the money. He wants to pay off his $168K mortgage. Who's right?
'Are we out of our minds?' My husband and I are in our 70s. Should we use $600K of our savings to buy our dream home?
I held power of attorney for my late brother. Can I withdraw money from his bank account to give to his favorite charity?
'The whole thing feels predatory': My grandma, 97, pays $170 a month for a $10,000 life-insurance policy. Should we stop payments?
I'm administrator of my sister's estate. Her bank won't tell me the names of her beneficiaries. Is that legal?
The index, which is maintained by WallStreetCourrier.com, compares the trading action in the Dow Jones Industrial Average DJIA during two periods — shortly after the opening bell, and during the final hour of the trading day. Using a proprietary formula, the index attempts to compare activity by individual 'dumb money' traders and professional 'smart money' investors.
Recently, the index has diverged from the performance of the Dow, suggesting that the smart money might be getting back into the market. The discrepancy is unusual, Paulsen said. Typically, the smart-money index is pretty tightly correlated with the direction of the Dow.
The last time the two parted ways — right at the outset of the bull market that began in October 2022 —ended up being a buying opportunity, Paulsen said.
Once again, the historically tight relationship between the two suggests stocks could be poised for another leg higher, Paulsen said.
'Since this bull market began on October 12, 2022, the correlation between the Dow Jones Industrial Average and the Smart Money Flow Index has been a remarkable 0.93,' he wrote, in a post on his 'Paulsen Perspectives' Substack.
The theory undergirding the indicator is that trades around the open are more likely to be driven by individuals, emotion and short covering. Short covering more often takes place around the open, Paulsen said, pointing to a typical flurry of activity driven by investors forced to buy back shares to close positions that moved against them.
By contrast, sophisticated traders with stronger informational advantages often wait until the end of the day to place their orders.
'The Smart Money Flow Index is essentially the difference between what smart money is doing each day less what dumb money is doing,' Paulsen said in his Substack post.
Data published by trading desks at Goldman Sachs Group and elsewhere indicate sophisticated investors like hedge funds have spurned stocks recently. Flows on retail traders, meanwhile, indicate aggressive buying during every dip.
See: Newer investors have been rewarded for buying market dips. That won't last forever.
U.S. stocks finished the week lower on Thursday, with the S&P 500 SPX, Dow Jones Industrial Average and the Nasdaq Composite COMP all booking weekly losses, FactSet data showed.
That added to the market's troubles in 2025. The S&P 500 has fallen 10.2% since the start of the year, while the Nasdaq Composite has fallen by 15.7%. The Dow is 8% lower.
U.S. equity trading was closed on Friday for the Good Friday holiday.
See: Is the stock market open today? Are banks closed?
'It's just not done': Why Trump firing Powell could rock U.S. financial markets
Wall Street predicts a 10% stock rebound by the end of 2025. Why investors shouldn't buy the hype just yet.
Wall Street's 12 favorite stocks could soar as much as 54% over the next year, analysts say
My IRA and personal trading account had the biggest one-day gain ever. What will tomorrow bring?
Not even the co-creator of this economic-uncertainty index can tell when the worst will be over
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
an hour ago
- Yahoo
S&P 500 Gains & Losses Today: J.M. Smucker Stock Sinks, Tesla Shares Recover
The S&P 500 added 0.6% on Tuesday, June 10, 2025, as investors awaited developments in trade negotiations between the U.S. and China. Tesla shares moved higher as social media posts from CEO Elon Musk promoted the company's upcoming robotaxi launch. Declining sales of sweet baked goods weighed on the performance J.M. Smucker, and shares of the food maker U.S. equities indexes climbed Tuesday as trade representatives from the U.S. and China engaged in talks for a second straight day. Both the S&P 500 and the Nasdaq ended the session with gains of around 0.6%, while the Dow was up 0.3%. Read Investopedia's full coverage of the day's trading here. Intel (INTC) shares surged nearly 8%, gaining the most of any stock in the S&P 500. Shares of other semiconductor makers also moved higher as the U.S.-China talks bolstered hopes for looser export restrictions. Although Apple (AAPL) said it will end support next year for Mac computers built with Intel's processors, providing more evidence of the transitional period faced by the chipmaker, analysts have expressed confidence in the ability of CEO Lip-Bu Tan, who took the reins of in March, to drive a turnaround at Intel. Caesars Entertainment (CZR) shares jumped 5.7%. TD Cowen analysts reiterated a "buy" rating on the casino operator's stock, noting that the company's loyalty program has helped drive entertainment, food and beverage, and lodging revenues to supplement its traditional earnings from gaming operations. The analysts also pointed to potential growth in its digital business. Tesla (TSLA) stock also added 5.7% as social-media posts from CEO Elon Musk hinted at the impending launch of the company's autonomous ride hailing service in Austin, Texas. Tuesday's move higher extended a recovery for the stock that kicked into gear during the previous session as tensions appeared to ease between Musk and President Donald Trump. Warner Bros. Discovery (WBD) shares advanced 5%, a day after the media conglomerate announced plans to split into two companies. One entity will house Warner's TV and movie studios along with the HBO Max streaming service, while the other will be home to its cable channels and the Discovery+ streaming service. The stock initially surged following the Monday-morning announcement, gave back those gains to end Monday's session lower, and then rose again today. Food maker J.M. Smucker (SJM) reported lower-than-expected sales for its fiscal fourth quarter of 2025, and its profit guidance for fiscal 2026 also came in below expectations. The maker of Folgers coffee and Uncrustables handheld sandwiches said that volume/mix impacts contributed to a year-over-year decline in net sales, especially declines in dog treats and sweet baked goods. Smucker shares sank nearly 16%, losing the most of any S&P 500 stock on Tuesday. Universal Health Services (UHS) fell 2.9% on Tuesday, extending losses posted in the prior session after the hospital operator's chief financial officer discussed a decline in the volume of surgical procedures at its facilities. Read the original article on Investopedia Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Los Angeles Times
an hour ago
- Los Angeles Times
US stocks drift closer to their record as Wall Street waits to see what US-China talks will bear
NEW YORK — U.S. stocks drifted closer to their all-time high on Tuesday as the wait continued to hear what will come of trade talks between the United States and China. The S&P 500 rose 0.5% as talks between the world's two largest economies carried into a second day. The Dow Jones Industrial Average added 105 points, or 0.2%, and the Nasdaq composite gained 0.6%. Stocks have roared higher since dropping roughly 20% below their record two months ago, when President Donald Trump shocked financial markets with his announcement of tariffs that were so stiff that they raised worries about a possible recession. Much of the rally has been due to hopes that Trump would lower his tariffs after reaching trade deals with countries around the world, and the S&P 500 is back within 1.7% of its record set in February. It's getting to be time to see whether such hopes were warranted. The talks with China were going 'really, really well,' U.S. Secretary of Commerce Howard Lutnick said Tuesday evening in London, where the talks were being held. The two sides worked on 'all sorts of trade issues,' he said, according to a video clip posted by the Chinese state broadcaster CGTN. Both the United States and China have put many of their tariffs announced against each other on pause as talks continue. Even though many tariffs are on hold for the moment, they're still affecting companies and their ability to make profits because of all the uncertainty they've created. Designer Brands, the company behind the DSW shoe store chain, became the latest U.S. company to yank its financial forecasts for 2025 because of 'uncertainty stemming primarily from global trade policies.' The company, which also owns the Keds, Jessica Simpson and other shoe brands, reported a larger loss for the start of the year than analysts were expecting, and its revenue also fell short of forecasts. CEO Doug Howe pointed to 'persistent instability and pressure on consumer discretionary' spending, and the company's stock tumbled 18.2%. The uncertainty is moving in both directions, to be sure. A survey released Tuesday of optimism among small U.S. businesses improved a bit in May. 'While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth,' according to Bill Dunkelberg, chief economist at the National Federation of Independent Business. On Wall Street, J.M. Smucker fell 15.6% even though its results for the latest quarter topped analysts' expectations. Its revenue fell short of expectations, as did its forecast for profit in the upcoming year. Tesla helped to make up for such losses after rising 5.7%. The electric vehicle company has been recovering since tumbling last week as Elon Musk's relationship with Trump imploded. That raised fear about possible retaliation by the U.S. government against Tesla. Shares that trade in the United States of chipmaking giant Taiwan Semiconductor Manufacturing Co. rose 2.6% after the company known as TSMC said its revenue in May jumped nearly 40% from the year earlier. Casey's General Stores leaped 11.6% after the chain of convenience stores based in Ankeny, Iowa, reported a stronger profit for the latest quarter than analysts expected. It credited strength in sales of hot sandwiches and other items. All told, the S&P 500 rose 32.93 points to 6,038.81. The Dow Jones Industrial Average added 105.11 to 42,866.87, and the Nasdaq composite climbed 123.75 to 19,714.99. In stock markets abroad, indexes were mixed amid mostly modest movements across Europe and Asia. A 0.8% drop for Germany's DAX and a 0.6% gain for South Korea's Kospi were two of the bigger moves. In the bond market, the yield on the 10-year Treasury eased to 4.47% from 4.49% late Monday. Choe writes for the Associated Press.
CNBC
an hour ago
- CNBC
Stock futures are near flat as U.S.-China trade talks continue, May inflation report looms: Live updates
Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2025. Brendan Mcdermid | Reuters Stock futures were little changed on Tuesday evening as investors awaited progress on trade policy talks between the U.S. and China. They also anticipated the release of May's consumer inflation report. Futures tied to the S&P 500 slipped 0.07%, while Nasdaq 100 futures pulled back 0.05%. Dow Jones Industrial Average futures lost 28 points, or 0.07%. Trade talks between U.S. and Beijing officials continued for a second day in London on Tuesday. U.S. Treasury Secretary Scott Bessent said he would be departing the ongoing trade talks with China, but U.S. Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer would remain to continue the negotiations. Discussions could extend into Wednesday if needed, Lutnick said earlier. The discussions are a key focus for investors and a broader market that remains jittery toward any jolts on trade policy. Both China and the U.S. previously agreed to temporarily pause high tariffs on one another in May, although a fully ironed out agreement has yet to materialize. In regular trading on Tuesday, the S&P 500 rose about 0.6%, posting a third straight positive session. The broad market index sits less than 2% off the high it notched in February. The Nasdaq Composite added 0.6% on Tuesday, while the 30-stock Dow climbed 0.3%. Even as stocks have been resurging, tariff fears and rising bond yields could hang over the market, according to Deutsche Bank. "One key concern is that the Trump administration, buoyed by the market rebound, may resume aggressive tariff rhetoric—potentially triggering renewed retaliation from China and Europe, as seen earlier this year," the firm's group chief economist David Folkerts-Landau said in a Tuesday note. "At the same time, rising long-end bond yields are amplifying fiscal concerns globally, particularly given plans for expanded deficits across multiple major economies," he added. "With several countries already on unsustainable debt paths, the events of 2025 may have accelerated an inevitable reckoning." Investors will get further insight into the U.S. economy on Wednesday morning as the Bureau of Labor Statistics rolls out May's reading of the consumer price index. Economists polled by Dow Jones call for a 0.2% month-over-month increase, while headline CPI is anticipated to have grown 2.4% from 12 months earlier. A hot report could spook investors who are already on edge over inflationary pressures. "Ultimately this report is not expected to cause any significant changes to the Fed's current wait and see approach when it comes to setting rates," said Sam Millette, director of fixed income at Commonwealth Financial Network. "With that being said, we'll have to wait and see if the report shows the anticipated modest rise in price pressure that's expected or if there are any surprises in store for investors." On the earnings front Wednesday, traders will look for reports from Chewy and Oracle .
