Trading activity peaked on January 3 and 4, with roughly 3 times the normal trading volume on those days.
However, net participant transfers flowed into equities on January 3, a day when the S&P 500 rose more than 5%, and the NASDAQ soared more than 14% on news of the surprise Fed rate cut.
Participants heading toward equities on that day would likely have been buying at a relatively high price, since most 401(k) mutual fund trading is processed at the closing NAV, or net asset value, at the close of business.
On January 4 participants did an about face, again with a relatively high trading volume, but moving toward fixed income on a net basis. With major indexes largely unchanged on that day, participants might have avoided selling “locking in their losses” by selling at a low price.
Overall the Hewitt 401(k) Index found that on most days during the month, when the market was up, most participant money headed toward stocks, and when markets were down, the majority of transfers headed toward fixed income.
Interest rate moves at the Federal Reserve appeared to serve as triggers, with above average trading activity occurring only on or immediately after the Fed cut rates in January.
Contributions continued to flow heavily toward stocks, attracting nearly 80% of new monies.
At the end of January, participant balances were still heavily weighted toward company stock, which again represented the largest overall participant allocation. Other allocations included:
- 29.04% – company stock
- 26.65% – large cap US stocks
- 17.37% – GIC/stable value
- 5.84% – Balanced
- 4.36% – mid cap US stocks
- 3.77% – Lifestyle
- 3.69% – international
- 2.86% – money market
- 2.40% – bonds
- 2.44% – small cap US stocks
1.12% – specialty/sector funds
- 0.32% – self-directed window
- 0.14% – emerging markets.
The Hewitt 401(k) index is based on data collected daily from 1.5 million 401(k) participants with approximately $68 billion in collective assets.