Investors are returning to the U.S stock market after the worst selloff in seven months, adding almost 52 times more money to exchange-traded funds that own equities than bonds.
About $21 billion has been added to ETFs that buy and sell American shares in the past two weeks as stock prices recovered, according to data compiled by Bloomberg. The deposits compare with about $407 million sent to fixed income since Feb. 11.
“Equities still remain the more attractive assets class and headwinds for bonds will continue,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania, said in a phone interview. His firm oversees about $7 billion. “Consumer confidence is hanging in there pretty well. We see signs of broadening economic growth.”
Money is flowing back to equities after expanding corporate earnings and a strengthening economy boosted confidence that the bull market will extend into a sixth year. The Standard & Poor’s 500 Index rose 0.4 percent to 1,851.96 as of 12:33 a.m. in New York, rising above its record close reached Jan. 15.
The money sent to stock ETFs marks a reversal from January, when investors withdrew almost $14 billion from equities and deposited $1 billion into fixed-income ETFs, data compiled by Bloomberg show. The S&P 500 slid 5.8 percent between Jan. 15 and Feb. 3, the worst retreat since June 2013.
After sliding in six of the eight days ending Feb. 3 on concern turmoil in emerging markets would curb global growth, the S&P 500 has rebounded 6.3 percent, including a four-day gain ending Feb. 11 that was the biggest advance in more than a year. That surge concluded with a 1.1 percent rally as Federal Reserve Chair Janet Yellen pledged to maintain Ben S. Bernanke’s policy of cutting bond purchases in measured steps.
The benchmark gauge has climbed 173 percent since falling to a 12-year low in March 2009, rising today as purchases of new homes unexpectedly climbed to the highest level in more than five years and retailers rallied. It’s little changed this year after jumping 30 percent in 2013, the best annual gain in more than a decade.
“There was an initial scare about emerging markets, which by the way may still have more to play out, that reversed those flows,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees $160 billion, said by phone. “Investors reluctantly return to the market and many hope to catch up on a bull market that has passed them by.”
Equity ETFs attracted $3.9 billion yesterday, compared with about $250 million for bond funds, data compiled by Bloomberg show. Last year, a record $139 billion flew to stocks while fixed income took in $10 billion, the data show.
Treasuries were little changed this month after returning 1.8 percent in January, according to the Bloomberg U.S. Treasury index. Losses this month have stemmed in part from flows out of fixed-income and into equity funds.
Equity mutual funds attracted $5.9 billion in the week ended Feb. 19, compared with $2.9 billion for bond funds, the Washington-based Investment Company Institute said in an e-mailed statement today.
Strategists see further gains for U.S. equities while projecting losses in Treasuries. The S&P 500 will climb 6 percent to 1,956 from yesterday’s close, according to the average forecast from 21 strategists surveyed by Bloomberg.
The yield on 10-year U.S. government bond will be 3.37 percent by year-end, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings. The move would hand a 2.8 percent loss to an investor who purchases today, data compiled by Bloomberg show.
“Some rotation back into stocks is in order,” Eric Teal, who helps oversee about $4 billion as the chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina, said by phone. “Consumer confidence is picking back up with unemployment beginning to look better and no major global macro events on the immediate horizon. Sentiment looks strong and seems to be improving.”
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