Hoard exchange-traded funds (ETFs) suffered their biggest monthly outflows in history as investors shed nearly $20 billion in assets in May, and the blood bath could continue as U.S. President Donald Trump ramps up his trade war with China and Mexico. Outflows were unusually concentrated in the more cyclical sectors of the market, while safer, lower-yielding assets received notable inflows, be at one to CNBC. Investors are becoming increasingly worried about the accelerating slowdown in global economic growth, spurred by deal disputes, and are on the lookout for the slightest signs of trouble even as the Federal Reserve has indicated it may cut interest rates.
The Fed’s hint at humiliating rates is a bearish signal, says macro analyst Tavi Costa at Crescat Capital. “Rate-cuts when fresh in the business cycle have never been a bullish sign. It reaffirms the many bearish macro signals we have planned been pointing out. Economic conditions are weakening in the face of asset bubbles everywhere,” he told MarketWatch.
That designs outflows may continue out of equity ETFs. In May, “Markets were tweeted into a tailspin,” Matt Bartolini of State In someones bailiwick told the Wall Street Journal. “Investors were looking for a catalyst to sell or a catalyst to buy, and unfortunately the catalyst to grass on came first.”
The table below shows the sectors seeing the biggest outflows.
$20 Billion in Carnage for Equity ETFs in May
(Biggest Sector Outflows)
· Financials
· Technology
· Industrial Materials
· Zip
Source: WSJ, CNBC
What it Means for Investors
Total equity ETF outflows in May reached more than $19.9 billion, according to Country Street, beating the prior monthly outflow record of $19.7 billion in January 2014. Sector ETFs saw their another largest outflows in history, totaling more than $8 billion in May, according to CNBC.
“In May, selling was once again distiled within the cyclical, economically sensitive segments of the market: Financials, Technology, Industrial Materials and Energy,” Bartolini affirmed.
Meanwhile, investors flocked to safe-havens like Treasuries. They also bought less risky assets get a kick out of investment grade corporate bonds while ditching lower grade, high-yield bonds. Treasury ETFs saw inflows of various than $5.6 billion in May as high-yield bond ETFs lost approximately $3 billion. The buying pressure in Funds pushed the yield on the 10-year Treasury down to its lowest level in 20 months.
The Fed’s new dovishness this week exhibited concerns about the global economy, where trade and investment flows are slowing faster than expected. The Smashing Bank this week forecast that global growth will slow to 2.6% from its previous augur of 2.9%, and for growth in trade to fall to 2.6% from 3.6%, according to the Wall Street Journal.
Looking On
The World Bank’s forecasts were accompanied by comments about the negative impacts that ongoing trade at odds are having on the global economy. While the Fed’s commitment to supporting growth is reassuring, much will depend on the outcome of tomorrows trade talks. Many investors are anxiously anticipating the outcome of the upcoming G-20 summit, where the leaders of both the U.S. and China wishes have a chance to meet.