Money is pouring into the U.S. stock market at the fastest pace since 2015, although valuations are approaching all-time highs and investors are worried that higher inflation could push the U.S. Federal Reserve to tighten monetary policy.
Since February, U.S. equity funds have experienced a net flow of $ 189 billion, a “significant boost,” said Cameron Brandt, research director at EPFR, the company that compiled the data.
Strong growth expectations, lower interest rates, higher consumer spending and rising vaccination rates in the U.S. have renewed investor faith in the U.S. economy, which has supported to the increase in flows during the first half of 2021.
Goldman Sachs expects households and businesses to buy $ 500 billion in shares by the end of the year.
A significant part of the proceeds went to cyclical actions, such as financial, industrial and energy, which are benefiting from higher economic growth. U.S. small-cap value funds accumulated $ 11 billion in revenue in the first five months of 2021, more than any other year in the last decade, according to a monthly survey by the Wells Fargo Investment Institute.
Investors are expected to continue betting on US short-term equity funds, but “we expect the trip to be volatile as investors value the possibility of reducing and raising Fed interest rates.” , said Ken Johnson, Wells Fargo analyst.
As the U.S. economy continues to open and more people apply for jobs, the next U.S. employment report on Friday is expected to be stronger, raising speculation that inflation will rise further .
“We are still in the field where we want to position ourselves for economic recovery: commodity and financial stocks and maintaining that procyclical value… But balancing it with health and consumer commodities,” said Eddie Perkin, director of Eaton Vance Equity Investments, Fund Manager.
However, some institutional investors are looking to cut their equity exposures to reduce risk due to high valuations.
“There’s already been a bit of rotation outside of growth stocks, which are traditionally higher multiples toward value, which is lower… I think there could be more things to come, but from our perspective it would be quite generic, ”said Amy Falls, director of investment for Northwestern University’s endowment. “It simply reduces equity risk rather than certain sectors.”