S&P 500 Outlook:
- The HYG ETF registered an intraday outflow of -$700 million on Wednesday – the largest in 2019
- In the year-to-date, broad-market tracking funds have now seen assets under management shrink
- Retail traders are overwhelmingly short the Dow Jones and S&P 500, find out how to use IG Client Sentiment Data with one of our Live Sentiment Data Walkthroughs
S&P 500 Outlook: Investors Flee Risky Corporate Debt Amid Rout
The risk appetite of investors is waning as the S&P 500 and Dow Jones continue to slide. On Wednesday, the HYG ETF – which grants exposure to high yield corporate debt – registered its largest daily net outflow in 2019. The outflows effectively double down on the same theme that has sparked an unwillingness for many market participants to maintain exposure in riskier trades like Tesla and Uber.
Investors Shed High Yield Corporate Debt Exposure
Data source: Bloomberg
Wednesday’s outflow of -$700 million was the largest on a single-day basis since December 21, when traders reduced their exposure to HYG by -$864 million. In the year-to-date, the HYG ETF has returned 5.11% - compared to roughly 10% for the S&P 500. During this period, HYG has seen its net flows total $884 million, despite shedding -$1.06 billion this week alone. Interestingly, investor allocation to the largest broad-market tracking funds has shrunk in the year-to-date.
Broad Market Exposure Cast Aside
Data source: Bloomberg
While investors have expressed demand for the riskier HYG fund for the year, net capital flows for the largest Index-tracking funds have dwindled in 2019. SPY, IVV and VOO, which boast a collective $536 billion in assets under management, have seen a total of -$6.3 billion leave their coffers in the first five months of 2019. Prior to May, the funds registered inflows nearing $10 billion – but a total net outflow of -$16.3 billion in the last month has shattered the capital allocation trend.
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The lack of demand - despite an overall market gain of roughly 10% - highlights the shift in the perceived risk-reward ratio of the stock market at current valuations. With trade wars and slowing global growth, yield curve inversions and surprise tariffs, the optimism of many investors has been battered. Until some of these headwinds are resolved or there are newfound reasons for optimism, the “Sell in May and Go Away” theme is poised trickle into June.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
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