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WSJ asks who else is left to buy?

sma3
in Fund Discussions
The Breakfast Briefing
What to make of a massive ETF flow?
For clues of what might stop the current stock rally, it's worth plumbing Wednesday's buying frenzy that carried the Dow Jones Industrial Average up more than 300 points and over the 21000 milestone for the first time ever.
The Dow gave back 113 points Thursday, a modest pause noteworthy because it was still the largest decline in a month.
But Wednesday's climactic rally is worth revisiting for a number of reasons. First, it snapped a 50-session streak during which the S&P 500 hadn't move more than 1%, the longest such streak since at least 1975, according to Thomson Reuters. Overall stock trading volume hit 8.1 billion shares, the highest of the year, according to WSJ Market Data Group. Finally, the SPDR S&P 500 ETF saw an inflow of just over $8 billion dollars on Wednesday, the biggest on any single day since December 2014, according to State Street Global Advisors.
Short-term fund flows can be noisy, particularly in this $238 billion ETF -- the market's largest and oldest. For one thing, banks and trading firms regularly create new ETF shares solely to satisfy short-selling demand. On paper, those bets against ETFs show up as “inflows” in the same way that long-term investments do.
And yet frenetic one-day scrambles for this ETF -- known by its ticker SPY -- that lift assets by more than 3% are rare and typically bode ill for future market returns. Jason Goepfert at SentimentTrader found only 10 other instances since 2006. The average S&P 500 performance after these occasions is flat over one month and slightly negative over two and three months.
It could be that Wednesday's burst higher marked a bit of panic on the part of traders looking to get into the market for fear of getting left behind. That might also mean that there's not much cash left out there to keep the rally in high gear, as has been the case for over a decade after massive one-day SPY inflows.

Comments

  • MarkMark
    Who indeed. It's a most interesting question. And what will they be buying it with? All that cash sitting on the sidelines waiting for a correction? Lots to ponder.

    On the other hand, should (when, if) correction day comes what exactly will have happened to cause all those companies, who suddenly and dramatically drop in prices sufficient to lure in buyers, to lose their previously perceived value? Such a game.
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