US Stocks Suffered "Massive" Outflows As The S&P Jumped

Add one more paradox to a market that seemingly refuses to follow any logic.

In a week in which the S&P did not suffer one down day despite the "Cohn Gone" scare and Trump's trade war announcement, US stocks suffered "massive" - in Reuters' words - outflows, according to BofA analysts and EPFR data, which found that investors rushed into government bonds and other safer assets.

Yet while investors bailed on stocks, someone else was clearly buying, as seen by the S&P's weekly performance.  How is this possible? Two words - stock buybacks.

Looking at the past week, as investors allocated modest capital to European, Japanese and EM funds (+0.1$BN, +$4.1BN and +$0.8BN respectively), they pulled money out of the US at a frantic pace, redeeming $10.3 billion from U.S. equity funds.

The risk-off mood drove investors to put money into the safest of venues, money market funds, whose assets jumped to $2.9 trillion, the highest level since 2010. Gold also saw inflows of $0.4 billion.

Confirming that retail investors were spooked by trade war fears, U.S. small caps "were sheltered from the storm" and enjoyed a tiny $0.03 billion in inflows, offset by $10.1 billion in large-cap outflows.

That said, Trump's backing down and exempting of Canada and Mexico from the final tariffs announced late on Thursday eased investors fears, while news the U.S. president would meet with North Korean President Kim Jong Un caused crude prices to rise. "US-DPRK detente suggests protectionism can remain at "bark" not "bite" stage," argued strategists.

Still, BofA's Michael Hartnett is less sanguine, pointing out that "as QE ends, protectionism begins." He adds that the upcoming "war on Inequality" will be fought via Protectionism, Keynesianism, Redistribution, and warns that with "monetary & fiscal policy now spent" it leaves markets to discount Protectionism, even as global tariffs are very low (for now as shown below). This is offset by the US-DPRK détente, which suggests that "protectionism can remain at “bark” not “bite” stage."

Furthermore, as we noted earlier another latent risk is the imminent end of QE: with just 116 trading days until SPX enters the longest bull market all-time, "bullish QE is peaking as Fed/ECB/BoJ have bought $11tn of financial assets since LEH" while in 2018 the Fed will sell $400bn in assets, the ECB tapers in Sept, and by year-end Fed/ECB/BoJ asset purchases turn -ve YoY.

The approaching end to quantitative easing also caused outflows from rate-sensitive credit markets, driving BAML's "Bull & Bear" indicator of market sentiment down to 6.8, down from 7.6 in the previous week. The indicator's 10-point scale ranges from most bearish at zero to most bullish at 10.

It's not just equities: junk bond outflows are also accelerating, with redemptions for eight straight weeks and $3.1BN redeemed in the latest week, while investment grade inflows continue to lose momentum as IG bonds remain some of the worst YTD performers amid rising rates.

Yet nothing appears able to dent what is going on in the tech sector: while global tech funds did slip last week, losing $0.2 billion, they have drawn in record inflows of $42 billion so far this year, even as the market cap of U.S. tech stocks already dwarfs the combined market cap of emerging markets' and euro zone equities.

Finally, going back to the growing risk of protectionism, here Hartnett writes that the ideal fund to capitalize on global trade war would be: "long “stagflation”…long cash, commodities, real estate, equity volatility, growth defensive sectors e.g. health care "

There was some good news for long-suffering carbon-based fund managers: the silver lining was that active management continued its comeback, if only for the time being - actively managed funds saw their biggest inflows year-to-date since 2013.


NoDebt cheka Fri, 03/09/2018 - 13:01 Permalink

"Yet while investors bailed on stocks, someone else was clearly buying"

That would be a truism, would it not?  If somebody sold something that would, by necessity, require somebody else buying it on the other side of the transaction.  No?

And, by the way, I sure hope it's the Fed doing the buying.  That means it's held in hands that will NEVER AGAIN SELL IT, therefore never driving the price down again.


In reply to by cheka

itstippy The Real Tony Fri, 03/09/2018 - 13:40 Permalink

They don't care.  The corporate bigshots approve borrowing money for corporate stock buybacks.  They cash in their stocks and stock options at the top, during the buybacks.  The aftermath is a corporation with no future and massive debt and a lot of very wealthy former executives.

These stock buybacks are like a leveraged buyout of your own company.

In reply to by The Real Tony

TheRideNeverEnds Grandad Grumps Fri, 03/09/2018 - 13:02 Permalink

You need a buyer and seller for every transaction but that doesn’t dictate price.  Bids and offers dictate price and supercomputers dictate bids and offers.  


Its just retarded retail selling the bottom again.  This bull market is just getting its legs.  Sure the COMP is making new all time highs with every tick but it has at least another few hundred percent of upside.  

In reply to by Grandad Grumps

El Hosel Fri, 03/09/2018 - 12:27 Permalink

Volume is stupid light this week and today....Options expiration can't even get any volume going. I bet there might be a few shares for sale at the close.

nsurf9 Fri, 03/09/2018 - 12:33 Permalink

The successful thief may get a little tired, but will never stop stealing from an easy mark - - - like "We the People. 

At this point, I'm not sure audit, arrest and seizure will be enough to stop them!

Son of Captain Nemo Fri, 03/09/2018 - 12:39 Permalink

To go with the "PARTY NEWS" and atmosphere!

This is "WHY" your witnessing Massive outflows (…) and where all of your money has been going since this announcement "the day before" ( That will only get worse whether it's
Algo-controlled" or "NOT"! Keep telling yourselves that the reason President "Fire and Fury" is doing this has everything to do with eliminating North Korea's nuclear deterrent, or Russia's presence in Syria and their subterfuge in our "clean" electoral process"... And that it's not about "payment on demand" extortion through economic and military threats if we don't GET IT!!!

Perhaps one of the best Saker reads ever on the psychopathic delusional ways of an Uncle Sam rockin back and forth in his chair thinkin about just thinkin "check out" time!  Because he knows he ran out of time long... long... ago!!!

IntelligenceActs Fri, 03/09/2018 - 12:42 Permalink

It does make sense; Corporate officers are just as stupid as the typical retarded bull. Buy your stock back at record highs (avoid buying them and instead sell them at the market lows; read 2009) and then sell again during the bottom of the next crisis. Stupid is as stupid does. Corporations are just an extension of the people who run them...

Lembano Fri, 03/09/2018 - 12:54 Permalink

Retail investors are just being conditioned not to panic sell when the market drops. When the time is right retail investors will be the ones holding the empty bag when it falls of the cliff.

Hongcha Fri, 03/09/2018 - 13:14 Permalink

There are very large swathes of cash looking for a place to park. The SPY index pays out better than the great majority of countries' long-dated bonds. So why not?