Fed Fears Lead To Outflows – Weekly ETF Fund Flows
Last week wasn’t a great week for stocks… the S&P 500 finished lower for the first time in five weeks.
Geopolitical tensions continue to weigh on investors. The conflicts in Gaza and Ukraine have calmed down but the US is heading back to Iraq to deal with ISIS. This obviously creates more risk for the markets.
What’s more, investors are looking ahead to this week’s Fed statement. The US central bank will outline its latest monetary policy on Wednesday.
The outlook for interest rates is expected to remain the same. But some people are beginning to wonder if the Fed will begin to hint that interest rate hikes will begin sooner than expected.
One thing that’s a near certainty is the end of the Fed’s bond buying program.
They’ve been winding down this program from $85 billion per month in increments of $10 billion per month for months. They’re expected to buy $15 billion in October and then none in November.
In the past, the stock market hasn’t done well when the Fed has ended its bond buying programs. So we’re likely seeing some investors front running the end of the Fed program.
But here’s the thing… I think it’s a mistake to sell stocks just because the Fed program is ending. More than anything, I think last week’s pullback was simply a correction after five weeks of stocks move higher.
The market weakness didn’t discourage investors from putting money into ETFs.
Fund flows are a valuable indicator of what traders are thinking. It takes a lot of buying or selling to drive millions or even billions of dollars into or out of individual ETFs.
Fund flows are something traders use to find trends and gauge investor sentiment. And it can help you pinpoint which ETFs could be next to make a big move higher or lower.
Outflows hit a wide swath of ETFs last week. The two biggest losers were the PowerShares QQQ (QQQ) with $512 million net-outflows and iShares Russell 2000 (IWM) with $449 million in net outflows.
The outflow of money from the Q’s and small-caps is a sign investors are becoming more risk averse. This is the type of action I’d expect to see ahead of the Fed announcement coming this week.
Nevertheless, I think the hot money flowing out of these ETFs will likely come flooding right back in as long as the Fed doesn’t hint at earlier than expected interest rate hikes.
Once again, the SPDR S&P 500 (SPY) was back leading the way among ETF inflows. More than $2 billion flowed into SPY last week.
The inflows and outflows have been very volatile for the largest US listed ETF lately.
The recent influx of money pushed SPY back into positive territory for the 2nd half of the year.
Here’s the thing…
Market weakness pushed investors out of riskier ETFs, but overall inflows still outpaced outflows for US listed ETFs. And those inflows were paced by the large influx of money into the S&P 500.
Right now, investors are focused on Wednesday’s Fed commentary. As long as they don’t hint at interest rates coming sooner than currently expected, we should see the pace of inflows increase as investor sentiment trends back toward bullishness.
That wraps up this week’s ETF fund flows…
Keep in mind, there’s a lot of information about ETF fund flows. And it can be a very useful tool as long as you know what you’re looking for.
Good Investing,
Corey Williams
Category: ETFs, Market Analysis
