With The S&P At Record Highs, Investors Pull Cash From US Stocks In 4 Of The Past 5 Weeks
A curious dichotomy has emerged in global fund flows.
According to the latest flow report from BofA's Michael Hartnett, "it's risk-on in Bonds, it's inflation-on in Stocks, and EM is now playing role of cyclical catch-up trade." In short, in the last week the Trump Trade has emerged from the dormancy in which it had faded for the past month.
But when one looks at where the money is flowing, it is going everywhere except where one would expect, as US stocks continue to be shunned, based on EPFR data.
Here are the details.
- First in bonds, there has been a dip in bond yields which has incited big buying of IG bonds ($7.6bn...biggest since Aug’16), HY bonds ($1.9bn...note price-action in corporate bond markets remains resolutely "risk-on" as cross-asset signal – Chart 1), renewed interest in EM debt (inflows 5 of past 6 weeks), and 9th consecutive week of inflows to TIPS ($1bn…biggest week for TIPS since Trump election); in contrast, dip in Treasury yields coincides with largest outflows from Treasury funds YTD.
- Then, in stocks there has been inflows to equity funds investing in value, Europe, Japan (like TIPS, largest week of inflows for Japan since election), materials, and financials;
- Paradoxically, Emerging Markets have also gained as a Trump's "economic nationalism" had, at least until yesterday, proben to be dollar-negative not dollar-positive (biggest hit to consensus positions YTD), which has has made EM the contrarian Q1 winner...EM stocks and bonds have seen $11bn inflows YTD as investors start chasing this cyclical laggard. This trend may reverse however now that the dollar has resumed its grind higher.
Yet despite the latest weekly euphoria, BofA finds outflows from equity funds investing in US stocks, amounting to another $1.6 billion across ETFs and mutual funds, the 4th week of outflows in the past five. Among the sectors shunned are growth, telcos, consumer sector; i.e. redemption from "deflation assets", inflows to "inflation assets."
Still, despite this ongoing outflow from the US, the S&P continues to levitate to ever higher all time highs, making one wonder once again, if the latest record push is more a function of short covering (something we saw vividly earlier this week), and/or stock buybacks.