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Investors poured a record amount into US equity funds last week, snapping up technology stocks and shrugging off concerns over sticky inflation.
US equity funds drew $56bn of funds in the week to March 13 — more than the previous peak of $53bn set in March 2021, Barclays said on Friday, citing data from fund tracker EPFR Global.
The totals included a record $22bn into technology funds, which have driven much of Wall Street’s rally so far in 2024. The benchmark S&P 500 has climbed 8 per cent since the beginning of January, boosted by rapid ascents for megacap tech stocks including Nvidia, Meta and Amazon.
Stock markets around the world have hit record highs this year as investors become increasingly confident that central banks have succeeded in taming inflation without triggering a downturn.
Analysts said investors were unmoved by Tuesday’s data that showed an unexpected rise in US consumer price inflation, to 3.2 per cent in February. The small increase triggered a sell-off in bond prices, with yields on the 10-year US Treasury bond rising to their highest level in a month.
Equity markets “don’t seem bothered” by the unexpectedly hot inflation figures, said Barclays strategist Emmanuel Cau.
“With the Fed so far endorsing current market pricing of three [interest rate] cuts starting in June, investors continue to see the glass half full on the soft landing narrative.”
The data highlighted the challenges faced by the Federal Reserve in its fight to bring inflation down to a target of 2 per cent. Traders in swaps markets are now pricing in just three quarter-point rate cuts by December, half of what they were pricing at the end of 2023.
“For stocks, that shift in perception never seemed to matter. Stocks have rallied like crazy all the while that Fed rate cuts have . . . been pushed off further into the future”, said Mike Zigmont, head of trading and research at Harvest Volatility Management.
He expected that this equity market “immunity” would continue “unless we get signs of a recession or the Fed has to resume hiking”.
Investors are also increasingly drawn to tech stocks as a haven, replacing traditional defensives such as consumer staples and utilities, according to Kevin Gordon, senior investment strategist at Charles Schwab.
“Given many — not all — larger tech companies have strong balance sheets and are more insulated from rising rates, they have been the defensive plays,” said Gordon.
US Treasuries, which move with interest rate expectations, saw outflows in the week to March 13.
Crypto funds, meanwhile, attracted a record $3.4bn and investors shifted $49.7bn into cash in what Bank of America strategist Michael Hartnett called “stagflation trades” — positions that could benefit from the combination of sustained inflation, rising unemployment and stagnant economic growth.