Stock market: September has been bad so far, but things are about to get good

Posted by

Stock inflow means money flowing into stock markets. And stock index prices usually rise after a big stock inflow. 

The past week has seen a big stock inflow. Flows into mutual funds and related investment products showed sharply higher net purchases of equity products, steady inflows into fixed income, and also another week of FX flow into CNY and JPY; of these the most notable was the $51.2 billion going into stocks (with the usual distribution of $52.7 billion into ETFs, offset by $1.6 billion out of the mutual funds) – the largest inflow since March 21 – following +$13 billion the prior week; Separately $16.1 billion went to bonds, a tiny $37 million to gold (still the largest in 6 weeks), all coming out of money markets, as cash saw a decline of $61.8 billion, the largest outflow since July 20.

This acceleration reflected higher net inflows into the US market, which saw $45.7 billion in inflows, the most since March 21, while flows into global benchmark products and EM equities decelerated slightly, and demand for non-US DM equity products was roughly steady:

  • Japan: largest inflow in 3 weeks ($0.1 billion)
  • Europe: largest inflow in 4 weeks ($0.1 billion)
  • EM: inflows past 6 weeks ($1.8 billion)

By sector, the largest net inflows (scaled by asset under management) were into industrials.

This also lead to fund positioning reaching another peak.

Commenting on this week’s fund flows, in his latest Flow Show note, BofA’s Michael Hartnett noted a “monster reallocation” in cash to stocks as the “tax redistribution threat” recedes and “as Fed was expected to remain Wall St-friendly”, leading to what the latest Fund Manager Survey dubbed the easiest liquidity since the peak of the last credit bubble in July 2007.

And with the floodgates now open, besides the massive equity reallocation, last week also saw the largest inflow to US large cap funds ever ($28.3 billion), the 12th week of tech inflows with $3.2 billion entering this week, the largest since March 21 again.

Summarizing the inflow distribution by style:

  • US large cap ($28.3bn),
  • US growth ($6.9bn),
  • US small cap ($4.2bn), US value ($1.6bn).

And by sector:

  • tech ($3.2bn),
  • consumer ($1.1bn),
  • healthcare ($1.0bn),
  • energy ($1.0bn),
  • financials ($0.6bn),
  • materials ($0.3bn),
  • utils ($0.2bn),
  • com svs ($0.1bn),
  • real estate ($95mn).

Away from equities, flows into global fixed income funds also picked up slightly on the week (+$16bn vs +$13bn the prior week), the largest inflows in 10 weeks, as most product categories experienced higher net inflows, with the exception of IG credit funds and EM bond funds, both of which saw moderately lower (but still positive) net inflows. Here is the full breakdown:

  • Largest IG bond inflow in 3 weeks ($8.7bn)
  • HY bond inflows past 3 weeks ($1.1bn)
  • EM debt inflows past 3 weeks ($1.4bn)
  • Largest Munis fund inflow in 3 weeks ($1.2bn)
  • Largest MBS inflow since Apr’21 ($1.0bn)
  • Govt/Tsy fund inflows past 2 weeks ($1.0bn)
  • TIPS inflows past 43 weeks ($1.0bn)
  • Bank loan inflows past 8 weeks ($0.6bn)

One thing to be sure of is, the money is keeping flowing into the US stock market. September so far has been grim for the stock market, but I believe things will be getting better very soon.