Undaunted bulls keep shoveling money into stocks
Whether it’s heroic resolve or epic naiveté, stock investors are giving no indication that they are troubled by the worst volatility to land on the bond market in a year.
In a week when a spike in Treasury yields pressured prices across the equity spectrum, U.S. exchange-traded funds consistently saw inflows — including $2.7 billion at the height of the carnage on Thursday. All told in February, ETFS sucked in a cool $80 billion, four times the 12-month average, data compiled by Bloomberg show.
It’s the same optimism that has underpinned the 70% rally in the S&P 500 over 11 months, the best start for a bull market in nine decades. While the sudden jump in yields erodes one pillar support for stock valuations, bulls are choosing to view it as a sign of economic strength that will boost corporate earnings.
“Investors are looking at the market today and saying, ‘Wow, this is going to come back faster than I thought. I need to position myself accordingly,’” said Wayne Wicker, chief investment officer at Vantagepoint Investment Advisers. “There’s a fear of missing out, of being under-invested.”
The bullish view has recently been tested, including in the last five days, when $1 trillion in value was erased from share prices. As 10-year Treasury yields surged to a 12-month high, favored shares sporting high valuations took another hard hit. The Nasdaq 100 dropped the most since October, while Tesla Inc. and star manager Cathy Wood’s ARK Innovation ETF both suffered their worst week since the bear market last March.
People nevertheless bought the dip, with the S&P 500 reversing a decline of almost 2% on Tuesday. Even during Thursday’s rout, signs of panic were few. Volume in the session was largely in line with the year’s average. The Cboe Volatility Index’s spot price stayed below that of its two-month futures, failing to form an inverted curve that usually signals heightened investor fears.
“We’ve seen for many reasons that people have been trained to buy the dips,” Kim Forrest, chief investment officer of Bokeh Capital Partners, said by phone. “Just about ever y economist out there thinks the U.S. GDP is going to be 6% or above and that says growth. And yes, there’s some specter of inflation that may bubble up,” but, she said, “people are not afraid of inflation because we haven’t had that horrible really life-changing inflation.”
Despite inflation scares emanating from fixed income, energy and financial shares — companies that are seen among those benefiting the most from an economic rebound — advanced for a fourth week in the latest sign of a deepening reflation trade.
The army of day traders, whose buying force had just
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