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Investors Piled Into Equities Last Week As Stock Indexes Posted Record Highs

As earnings trickle in, mixed clues for market sentiment.

Record highs for the S&P 500 and Dow Jones Industrial Average during the week that ended on July 12 prompted investors to put more money to work in equities, fund flow data shows. And a much-watched survey of professional money managers released this week also showed these investors adding somewhat to risk positions compared to relatively high cash positions in June.

This past week, the three biggest exchange-traded funds (ETFs) that track the S&P 500 took in $6.2 billion, according to Bloomberg and Zachs Research reports. Investors are “all-in on equities,” Steven DeSanctis, a U.S. stocks strategist for Jefferies wrote in a Monday report. Much of the cash that flowed into ETFs went to large-cap funds designed as core holdings, he wrote, according to the Bloomberg report.1,2

Data from Zachs also show that two ETFs focused on small-capitalization stocks added nearly $875 million in assets. Meanwhile, an ETF dedicated to mortgage-backed securities took in nearly $601.5 million, amid low mortgage rates and the accommodative stance from the Federal Reserve.

On the institutional front, money managers reduced their cash holdings to a 5.2% share of assets in July, compared to 5.6% in June, according to the most recent Bank of America Merrill Lynch (BofAML) Global Fund Manager Survey. Last month’s average cash holding marked the highest level since August 2011 and is still above the 10-year average of 4.6%.

The survey found that investors added to holdings in cyclical sectors like stocks of banks and industrials, as well as adding to holdings in European equities. They moved out of more defensive positions, like bonds, real estate investment trusts, utilities and consumer staples, according to this report.3

While yields on U.S. Treasury securities have bounced a slight bit this month, the biggest crowded trade remains being long U.S. bonds, according to the BofAML survey. That was followed by U.S. technology stocks and investment grade corporate bonds.

Michael Hartnett, the bank’s chief investment strategist, says the dovish Fed and trade truce prompted investors to reduce cash and add risk. But sentiment is still tilted toward “expectations of an earnings recession and debt deflation,” he said, with this summer’s pain trade remaining “up in stocks and yields.” In other words, investors could miss out if stocks continue to rally and bonds sell off.

Eyes on Earnings, Economic Growth

On the earnings front, analysts’ aggregate earnings estimates for the S&P 500 still indicate a 3.0% decline in the second quarter, according to FactSet Research Systems Inc. based on data through July 12. That would follow a 0.3% decline in the first quarter. Given that companies have been managing down earnings expectations for several months, a strong majority of companies reporting thus far are posting positive earnings and revenues surprises.4

It’s still very early days for earnings season, but of the 24 companies in the S&P 500 that had reported earnings, 20 reported a positive earnings-per-share surprise and 17 reported a positive surprise in revenues. If that trend were to continue it could call into question whether or not the aggregate results for the S&P 500 will mark two straight quarters of earnings declines for the first time since 2016. Again, only about 5% of S&P 500 companies had reported through July 12, so still early days.

In addition, this week through Wednesday, July 17 has witnessed mixed corporate earnings, prompting some pullback in stocks.

Looking ahead at how the U.S. economy is faring, some recent data has trended to the upside to close out the second quarter. Retail sales in June rose 0.4% from the previous month and 3.4% above June 2018, the Census Bureau reported July 16. Online sales surged 13.4% compared to a year ago, and sales were also strong at health and personal care stores, as well as at restaurants.5

The Federal Reserve’s report on industrial production in June, also released July 16, showed an annualized decline of 1.2%, marking the second consecutive quarterly decrease. On a positive note, though, manufacturing output rose 0.4% in June compared to a year ago and overall year-over-year figures for industrial production showed a 1.3% increase.6

Both reports prompted some economists to lift their forecasts for second quarter gross domestic product (GDP). The Atlanta Federal Reserve’s GDPNow model edged up to an inflation-adjusted estimate of 1.6%, up from 1.3% as of July 12.7


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1-Ponczek, S. (2019, July 15). Stock Investors Go ‘All-In’ With $6 Billion Bet on S&P 500 ETFs. Bloomberg as posted on Yahoo Finance. Retrieved from:

2-Saha, S. (2019, July 16). ETF Asset Flow of Last Week: S&P 500 Tops. Zachs Research. Retrieved from:

3-Holt, A. (2019, July 17). Investors add risk going into equities, says BofAML. IR Magazine. Retrieved from:

4-Butters, J. (2019, July 12. Earnings Insight. FactSet Research Systems Inc. Retrieved from:

5-U.S. Census Bureau (2019, July 16). Advance Monthly Sales For Retail And Food Services, June 2019 [Press Release]. Retrieved from:

6-Federal Reserve Statistical Release (2019, July 16). Industrial Production And Capacity Utilization [Press Release]. Retrieved from:

7-Federal Reserve Bank of Atlanta (2019, July 17). Atlanta Fed GDPNow Estimate for 2019: Q2. Retrieved from:

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