Bearishness increased for the short term (a one to two weeks horizon) while intermediate-term bullishness on US stock markets has tempered, flows data around the first interest rate raise by the Federal Reserve in nearly a decade show.
US equity ETFs have had inflows for 12 consecutive weeks, which, analysts at TrimTabs Investment Research say, is “worrisome from a contrarian perspective.”
Announced corporate buying has been $65.8 billion so far this month, comprised of new cash takeovers and new stocks buybacks. This has been 3.3 times new offerings of $20.1 billion, according to the analysts.
“We remain concerned about the underlying activity on the buy side. New cash takeover activity has not slowed amid the recent volatility, while new stock buybacks are set to be below $50 billion for the sixth month in the past seven. We would like to see cash mergers slow down and buyback volume pick up,” they wrote in their latest funds flows report.
In the week before the Fed’s decision to raise interest rates was announced, US equity funds saw $4.2 billion in outflows, all via mutual funds, while emerging market funds saw seven straight weeks of outflows, worth $1.3 billion, according to data analysed by Bank of America Merrill Lynch.
European equities saw $600 million going in, while Japanese stocks saw $300 million in inflows.
According to Bank of America Merrill Lynch’s own trading rule, global flows are close to triggering a “buy” signal for stocks.
In fixed income, high-yield debt funds saw their largest outflows in 12 months in the week that ended on December 16, worth $5.3 billion.
Bank loan funds also saw their biggest redemptions in 12 months, worth $1.8 billion. Emerging market debt funds saw $2.2 billion going out, the largest outflows in 15 weeks. This asset class saw outflows in 20 of the past 21 weeks.
Even investment grade bond funds saw outflows, their second largest in two years, worth $3.3 billion.
Treasury inflation protected securities (TIPS) saw inflows for the fifth week in a row, although those in the week before the Fed interest rate hike were small, worth $47 million.