ETFs & Markets with Todd Sohn: Overbought Trends, Flows, and Money Market Puzzle

So at a very high level as of November 12th here, there are over half of the equity ETF universe now trading greater than two standard deviations above their 200 day moving average.

So momentum clearly present, trend pretty clearly present across the equity ETF space. But you are getting a little bit stretched here in the very near term.

And from the flows level. You're seeing this ramp up here in the post and the days in the weeks past the election, you're really seeing demand for equity ETFs.

There was about 36 billion into equity ETFs in the three days post presidential election, that’s one of the highest rallies that we have seen on record. And then simply put, flows are really heating up.

You've done about 215 billion over the prior three months, and 2024 is really keeping pace with the record that was seen back in 2021. Now, hot flows can persist for quite some time, before we think sentiment becomes a headwind. But it is something that we want to be mindful of heading into 2025, especially when you start to see some spirits, return into corners of the market, such as single stock leveraged ETFs.

Those volumes are escalating, non-profitable tech. You're starting to see more interest there, too, and a lot of other high beta corners within the equity ETF universe.

Now, the sector level, we've been pretty vocal about how flows been all in on tech this year. They've slightly moderated over the last couple of weeks, and now you're starting to see a bit of a ramp up into cyclical sectors.

So think financials and industrials specifically there are pretty strong flows in the last week to those sectors. While there's still no demand for defensive. So I'm very curious about how this chart forms heading into 2025 in terms of sector positioning. For what it's worth, post 2016 and 2020 elections, cyclical sectors saw a huge amount of inflows following the clearance of the election events.

And again, those that can persist for quite some time before ultimately comes a positioning, headwind.

And then lastly, aside from the strong equity market right here, I do think it's interesting that you're seeing some issuers now file for money market ETFs.

There’s already one available on the market, but it strikes me as unusual. The timing seems odd, considering we’ve already seen $2 trillion flow into money market funds since the Fed’s lift-off in March 2022.

Occasionally, we’ve seen ETF launches that appear to coincide with the peak of a category. Think back to innovation strategies in 2021 or covered call funds in 2023. So, I’m a bit puzzled. Here we are, 75 basis points into a rate-cutting cycle, and investors should probably expect money market yields to gradually drift lower over time, especially if the cutting cycle continues.

That said, there’s still $2.7 trillion in retail money market accounts. We strongly believe that if and when yields decline further, much of this money will start flowing into fixed-income ETFs. Fixed-income ETFs already have over $1 trillion in assets, spanning more than 700 products, offering investors plenty of options to achieve yield and manage duration across the spectrum.

This is essentially a high-level and important chart highlighting where money could flow in the future. That’s what we have for you today. I hope this was helpful, and please don’t hesitate to reach out with any questions.

This communication was prepared by Strategas (“we,” “us,” or “our”), a brand that offers investment advisory services through Strategas Asset Management, LLC, an SEC Registered Investment Adviser, and provides research to institutional investors through Strategas Securities, LLC, a broker-dealer and FINRA member firm and an SEC Registered Investment Adviser.  This communication represents our views as of 10/08/2024, which are subject to change, and presented for illustrative purposes only. The information contained herein has been obtained from sources we believe to be reliable, but no guarantee of accuracy can be made. This communication is provided for informational purposes only and should not be construed as an offer, recommendation, nor solicitation to buy or sell any specific security, strategy, or investment product.  This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry, or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. Past performance does not guarantee future results. All investments carry some level of risk, including loss of principal.

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