ETFs & Markets with Todd Sohn: Are ETF Flows Indicating Rally Skepticism?

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So just to start with where the equity market rally is—we're about one month off the April 8th S&P 500 low. And what I think is interesting is you've had equity ETF flows really cool off.

Over the last few weeks, we've been averaging far less than the $2.7 billion in average daily inflows.

The last three weeks have been very subdued. And if you look at a trailing three-month sum on the bottom panel of this chart, you're really mean-reverting—you're back below the one-year average. And so we like this. That's the overall message here: the aggressiveness that started the year has really cooled.

Despite stocks rallying off their low, the trend in the market is still a liability. I would be very mindful of that. But putting it all together, as I'll show you on the next page, we think the sentiment perspective is at least supportive.

And digging into the flow data at a category level since the low—and again, the S&P was up at one point, say, 18%—the flows have favored Treasury bill ETFs, short-duration bond ETFs, gold, and crypto, which is actually acting as a diversifier, while leaving areas like cyclical sectors.

That includes financials, industrials, materials, and small-cap equities too. So there's some skepticism in terms of the high-level ETF data and at the risk appetite level too, the tactical area, which I think is really interesting.

Again, trend is still very much a liability. There's a lot of work to be done to get back into a favorable standing. But the flow data is very supportive.

What is different globally, though, is that you're actually seeing pretty good strength from international equities. There’s been a diversification movement away from the United States.

The U.S. is still the dominant investing vehicle—right?

We'll see if that ever changes. But here’s the MSCI EAFE Index and the number of new all-time highs it hits per year. And after over a decade of really just nothing, you're starting to see the number of new all-time highs perk up again. So that means international is contributing to portfolios.

We think that adding more international makes a lot of sense, especially because they are more overweight financials, industrials, healthcare to some extent. It’s a different tune than having just large-cap growth like you do within U.S. indices.

In terms of what investors are doing with their money, international allocations are up as part of that movement to diversify.

But I would not call them super extreme like we saw, say, earlier in the last decade when you had actual dollar strength—so many rushed into international allocations to hedge that. Different story today; the dollar is a bit weaker.

But importantly, this is the MSCI EAFE ETF—it is at its highest level since 2007. So again, international allocations are contributing to portfolios. That is extremely, extremely important for a globally diversified portfolio.

Lastly, on gold, which has also been part of a portfolio diversifier—one of the best trends in the market—just be mindful that flows to gold ETFs have really perked up recently.

Gold’s trend is stretched relative to history, and gold’s performance versus the S&P 500 is also in extreme territory. So, perhaps not the best idea for fresh allocations. If you have gold allocations, continue to manage them—they are still worthy of a spot in a portfolio. But just be mindful: there are some extremes from the sentiment and trend perspectives on gold.

So that's what we have today. I hope this was helpful. Flows again suggest some skepticism on this rally, international is working, and just be mindful of how you are managing gold within any sort of allocation. Let us know if you have any questions. Thanks for watching.

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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