S&P 500, Russell 2000, Company Bond Fund Flows as Q2 2021 Begins

S&P 500, Russell 2000, Company Bond Fund Flows Speaking Factors:

• S&P500-linked SPY ETF flows proceed to be combined as index breaks above the 4,000 degree.
• 20 Day MA of Russell 2000-linked IWM ETF flows turns detrimental for the primary time since mid-February.
• Company Bond ETF LQD noticed a report outflow in early April.

S&P 500, Russell 2000, Company Bond Fund Flows as Q2 2021 Begins

The US financial outlook has continued to enhance as Q2 begins. Information prints level to rising demand, elevated shopper spending and confidence, and robust exercise from each the companies and the manufacturing sector. The $1.9T American Rescue Plan has been signed into legislation and is starting to offer an additional increase to the economic system. The rise in longer-term US yields appears to have paused for the meantime. In the meantime, 1 in Four American adults have been vaccinated in opposition to Covid and the nation appears to be like on observe to renew some degree of regular financial exercise this summer season.

These elements have supplied a lift of main danger belongings, lifting the S&P 500 to the 4,000 degree for the primary time in its historical past at the start of April.

Regardless of the S&P 500’s current power, flows into the SPY ETF proceed to be combined. Shortly earlier than hitting the 4,000 degree, the ETF clocked its highest outflow in a number of years. The 20 Day transferring common of SPY’s fund flows continues to oscillate across the zero degree, reflecting the combined sentiment within the ETF.

Whereas the S&P 500 has continued to push to contemporary report highs, the small-cap based mostly Russell 2000 index has traded sideways. The index has struggled since hitting a report excessive in mid-March, slipping again from above 2,300 to at present commerce within the 2,200 vary. Additional strikes within the index might rely upon the timing and path of the financial reopening and additional strikes in bond yields.

Fund flows within the Russell 2000-linked IWM ETF equally mirror the struggles the Russell is at present going through. The month of April has largely seen outflows from the ETF. The 20 Day MA has flipped again into detrimental territory for the primary time since late February, when jitters within the Treasury market drove risk-off sentiment throughout markets.

Whereas the Russell might even see a robust increase from additional progress on Biden’s infrastructure invoice, it stays to be seen whether or not mentioned invoice can have sufficient help to be handed. With out a catalyst to drive the index to new report highs, the IWM ETF might proceed to see withdrawals within the close to future.

Regardless of the present pause in long run Treasury yield strikes, sentiment within the bond market nonetheless stays on edge as traders ponder the potential for greater inflation. Latest and upcoming CPI and PPI prints is not going to assist ease these worries among the many much less knowledgeable, as base results from final yr’s information will present YoY inflation prints properly over 2%. YoY PPI for March printed at 4.2%, and March’s CPI information is prone to present an identical story.

The company bond ETF LQD noticed its largest outflow on report on the primary day of April. Whereas the ETF noticed massive inflows final March and April on the again of Federal Reserve guarantees to offer help to the company bond markets. The termination of those amenities on the finish of 2020 coincided with a big uptick in outflows, and these elevated outflows have continued into 2021 as charges have moved greater. YTD, outflows from the ETF whole over $12 billion.

The MOVE Index, which tracks US rate of interest volatility, has halted its march greater however stays notably elevated in comparison with its ranges in late 2020 and early 2021. One other transfer greater in Treasury yields might spell additional bother for LQD and different bond ETFs.

— Written by Izaac Brook, DailyFX Analysis Intern