Euphoria grips the markets, but can it last?

Last week was a feast of records for Wall Street: the S&P 500 recorded six consecutive highs, something not seen for two decades. The streak only ended after a jobs report that showed the first negative reading in seven years, skewed by the hurricanes that hit the U.S. in September.

While enjoying the rally, investors are also quite scared of it. That becomes clear if we look at capital flows data, as analysed by Bank of America Merrill Lynch.

Equities have seen inflows in six of the past seven weeks, with $9.4 billion going into ETFs, but $4.3 billion withdrawn from mutual funds.

Bonds, which are usually the safe-haven class where investors retreat when they are worried, have seen inflows for 29 straight weeks.

Looking at the details of equities inflows reveals some unexpected facts: despite the S&P 500’s record highs, investors actually pulled out of US stocks, which have seen outflows in 14 of the past weeks.

Japanese equities have also seen outflows, for three weeks in a row. European equities, with inflows in 25 of the past 28 weeks, seem to be investors’ darlings, followed by emerging markets stocks, with seven straight weeks of inflows.

Financials saw their higher inflows in 13 weeks, probably due to major central banks’ monetary stimulus finally coming towards the end, followed by materials, health care, utilities and energy.

Already expensive, tech stocks saw modest outflows, as did the real estate and consumer sectors.

In fixed income, investment grade bonds gobbled $8.1 billion last week, their biggest inflows in 17 weeks. It is possible that investors had multiple geopolitical worries to deal with, but it shows that, despite the imminent threat of rising interest rates, they still love their safe haven.

And they love a bit of speculation, too. High yield bond funds saw money going in for the third straight week, while emerging market debt funds saw inflows in 36 of the past seven weeks.

Last Thursday, the Bank of America Merrill Lynch Bull & Bear indicator was at 7, not far from triggering a “sell” signal. But investors should stay put until it hits euphoric territory at 8.