Just 1.7% of the $128 billion of new money that investment management giant Blackrock attracted in the third quarter went into stock funds — and that’s positive for the U.S. market.

This trickle of new money into BlackRock’s
BLK,
+3.91%

 equity funds was revealed in the company’s third-quarter earnings reporteach beat the consensus analyst expectations.

Read: BlackRock’s profit climbs 22%, beats expectations

You might be surprised that more money didn’t flow into the company’s stock funds during the third quarter, since the U.S. market was so strong. For example, the Dow Jones Industrial Average
DJIA,
-0.54%

 rose 7.6% between July 1 and Sep. 30, and the S&P 500 rose 8.5%. The NASDAQ Composite Index
COMP,
-0.10%

 did even better, gaining 11.0%. Wouldn’t a market this strong attract a huge inflow of new cash into stocks?

Surprisingly, no. Since fund flows are a contrarian indicator, outflows — not inflows — are a sign of a healthy market.

Consider the bond market. As you can see from the chart below, 76% of the inflows to BlackRock’s offerings during the third quarter went into the company’s fixed income and cash-management categories.

To be sure, BlackRock is not the entire market, though with $7.4 trillion in assets under management it represents a big chunk. To get a more comprehensive picture of the flow data, I turned to Trimtabs, part of EPFR (a division of Informa Financial Intelligence.) In the third quarter, according to the firm, some $30 billion flowed out of U.S. equity funds (both open-end mutual funds as well as ETFs).

The chart below plots the TrimTabs data by calendar year going back a decade, with the 2020 data reflecting an annualized total based on data through early October. Notice that this year is the sixth in a row in which there have been net outflows from U.S. equity mutual funds and ETFs.

It’s not the case that fund outflows don’t depress the market. But researchers have found that this negative impact lasts only for a short time, and that this short-term effect is reversed over the subsequent several months. (I discussed this research at some length in a column this past June.)

This research helps to explain why TrimTabs interprets the fund flow data in a contrarian way. It maintains a model portfolio that trades according to changes in the fund flow data, and it currently is 100% invested in equities.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

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