Investors feasted on stock exchange-traded funds during the latest week while delaying their escape from the stressed bond market, data from the Investment Company Institute showed on Wednesday. Some $26.9 billion flooded into US-based stock ETFs during the seven days through December 14, the trade group said, the largest figure since the funds set a weekly fundraising record of $29.4 billion after the November 8 US presidential election.
Stock mutual funds, seen as a proxy for retail investors, posted $6.7 billion in withdrawals in the latest week. "The world was too pessimistic, now it's become a little too euphoric," said Joseph Davis, global chief economist for Vanguard Group. "Sentiment has changed markedly."
The net $20.2 billion that moved into the stock funds came as the Dow Jones industrial average has come within striking distance of the 20,000 milestone for the first time on hopes that US President-elect Donald Trump's promises to cut taxes and regulations could lift growth prospects. Trump takes office January 20.
Fixed-income markets have reacted with reticence, fearing bond-eroding interest rate hikes and inflation if government spending ramps up. The Federal Reserve last week hiked rates for the first time in a year. Yet demand for bond funds is holding up, with just $894 million in net withdrawals for US-based funds during the latest week. Instead of leaving the category, investors moved money to different kinds of bonds. ICI said investors pulled $3.5 billion from tax-exempt municipal bond funds, which pay interest that is exempt from US federal taxes. It marks the seventh straight week of outflows for munis, whose price is influenced by rates and tax policy.
But taxable fixed-income funds, a category that includes corporate bonds that pay relatively rich yields even as rates rise, took in $2.6 billion, according to ICI. Commodity funds, including those that buy gold, posted outflows of $576 million in their fifth straight week of withdrawals, ICI said. Gold is highly sensitive to higher rates, which diminish the appeal of holding an asset that pays no interest and boost the dollar, in which the metal is priced.