Money was still flowing into equity funds this week, even amidst some nasty selling in the market
The S&P 500 this week was roughly flat by 2:15 pm EDT Friday. For a week-and-a-half now, tech stock have been more or less in correction mode, with the Nasdaq 100 also roughly flat for the week and down 11% since September 2. Thursday, tech stocks sold off, in another signal investors are potentially going through a reassessment of growth tech valuations, as at-home services like e-commerce, cloud and streaming potentially see demand being pulled forward as adoption of the services accelerate. Meanwhile, value stocks were also flat, as investors contemplate faint signals from inflation and employment data that the economy is still on a fast-track recovery.
Still, a net $3.5 billion flowed into equity funds globally this week, according to research from Bank of America’s fund manager survey.
To be sure, $12.8 billion flowed into bonds, with $800 million of that into government bonds. Even with U.S. inflation data beating estimates for both consumer and producer prices — and inflation in August ran at below 0.5% — money was still driven into treasuries, with the 10-Year treasury yield stuck at below 0.7%. This is a slightly bearish signal, although the Federal Reserve does remain a large buyer of the bond.
But one reason investors may have some interest in stocks right now is that cash positions — built up during the throes of the pandemic — are still high and tech valuations have dropped a touch. Tech earnings are mostly over with and falling prices may mean opportunity for the investor who wants to nibble at the perennial U.S. outperformer, growth tech. Tech funds saw a $1.3 billion inflow, a relatively small one. And "no bear market when Fed so easy and Wall Street so flush with cash,” the BofA strategists wrote in their note. They said there is about $4.5 trillion in money market funds at present. That’s down from a few months ago but still up roughly 30% from mid-February. BofA private clients are holding about 12.7% of their portfolios in cash still. This week, investors were able to draw $23.7 billion of cash to buy financial assets.
The point: fundamental factors like economic data, the virus, stimulus, the election and earnings will decide the near-term movements in the market, but a sell-off met with high levels of cash on hand will provide support for markets.
Investors have a lot of cash.