S&P 500 Retreat Sparks Demand for Defensives

S&P 500 Retreat Sparks Demand for Defensives


Stock Market Fund Flows Talking Points:

  • Broad-market ETFs SPY, IVV and VOO notched $4.5 billion in outflows for the week
  • The XLV healthcare ETF recorded a near-record intraday inflow as the S&P 500 began its retreat
  • See Q1’19 forecasts for the Dow, Dollar, Bitcoin and more with the DailyFX Trading Guides.

Stock Market Fund Flows: S&P 500 Retreat Sparks Demand for Defensives

Amid a tumultuous week for the S&P 500 and other US equity markets, fund flows reveal that investors reduced exposure to the broad-market tracking ETFs of SPY, IVV and VOO. Together, the three funds notched $4.5 billion in outflows which marks the first week of net outflows in a month. The week also stands as the fifth week of net outflows for the year to date, despite a simultaneous 8.65% gain for the S&P 500.

Aggregate Fund Flows for Broad Market ETFs versus S&P 500 (Chart 1)

SPY ETF price chart

High-Yield Corporate Debt Sees Capital Flight

A sector-specific look into fund flows showed investors were eager to ditch their exposure to high-yield corporate debt, a recent high-flyer in the ETF space. This week however, the HYG ETF saw $108 million exit the fund. While somewhat minor, the week of net outflows marks the second such week after the fund saw its largest intraday outflow in over two months last Wednesday. Prior to the late-February outflows, the fund enjoyed a month of consecutive inflows.

HYG ETF Fund Flows (Chart 2)

HYG etf price chart

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Defensive Sectors Gain Traction

While broad-market and high-growth ETFs saw capital shift elsewhere, the defensive healthcare sector posted considerable inflows. Specifically, the XLV ETF realized its second largest intraday inflow ever on Thursday. The flow was dwarfed only by December 12th when the fund saw $786 million enter its coffers just days before the worst of December’s equity rout.

XLV ETF Fund Flows (Chart 3)

XLV etf price chart

The considerable demand for healthcare exposure is indicative of a risk-off mood in the ETF sector, echoed by investors’ decision to shed exposure to the riskier HYG. While prior extreme fund flows have not always preceded a deeper decline, the concerted flight to XLV this week suggests some investors believe the S&P 500 has more ground to give.

Read more: Will the Stock Market Crash in 2019?

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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