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Investors pumped a record amount into US equity funds last week, snapping up technology stocks and ignoring concerns about persistent inflation.
U.S. equity funds attracted $56 billion in funds in the week ending March 13 – more than the previous peak of $53 billion set in March 2021, Barclays said on Friday, citing data from fund tracker EPFR Global. .
The totals included a record $22 billion in technology funds, which have led much of Wall Street's rise so far in 2024. The S&P 500 has risen 8 percent since the start of January, buoyed by the meteoric rise of giant technology 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 tamed inflation without causing a downturn.
Analysts said investors were not impressed by data on Tuesday that showed an unexpected rise in consumer price inflation in the United States to 3.2 percent in February. The small increase sparked a broad sell-off in bond prices, with the yield on 10-year US Treasury bonds rising to their highest level in a month.
Emanuel Cow, a strategist at Barclays, said stock markets “didn't seem fazed” by the unexpectedly hot inflation numbers.
“With the Fed so far endorsing the current market rate of three [interest rate] Cuts starting in June, investors continue to see the cup half full soft landing narrative.
The data highlighted the challenges facing the Federal Reserve in its battle to reduce inflation to the 2 percent target. Traders in swap markets are now pricing in just three quarter-point rate cuts by December, half what they were pricing in at the end of 2023.
“For stocks, this shift in perception doesn't seem to matter at all. Stocks rose like crazy the whole time the Fed rate cuts happened. . . . “It was pushed into the future.”
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He expected the “immunity” in the stock market to continue “unless signs of recession appear or the Federal Reserve is forced to resume raising interest rates.”
Investors are also increasingly drawn to technology stocks as a haven, replacing traditional defenses such as consumer staples and utilities, according to Kevin Gordon, chief investment strategist at Charles Schwab.
“Given that many — but not all — of the big tech companies have strong balance sheets and are more insulated from rising interest rates, they have been defensive plays,” Gordon said.
US Treasury bonds, which move with interest rate expectations, saw outflows in the week ending March 13.
At the same time, crypto funds attracted a record $3.4 billion, and investors moved $49.7 billion into cash in what Michael Hartnett, a strategist at Bank of America, called “stagflation trades” — positions that could benefit from a mix Of sustained inflation, high unemployment, and stagnant economic growth.
