#GrowthSlowing globally (i.e. economic gravity) can’t be fixed by a central market planning #BeliefSystem this time.
In this brief excerpt from The Macro Show, Hedgeye Senior Macro analyst Darius Dale responds to a subscriber question about whether “financial engineering” can continue to prop up the stock market.
Takeaway: Domestic equity mutual funds continue on the sharpest draw down in history averaging losses of $-3.7 billion a week.
Editor's Note: This is a complimentary research note originally published April 28, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email email@example.com.
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Investment Company Institute Mutual Fund Data and ETF Money Flow:
All stock products lost funds in the 5-day period ending April 20th, totaling -$4.0 billion in withdrawals from equity mutual funds, and -$1.9 billion in redemptions from equity ETFs. The following table puts historical context around the current losing streak within domestic equity funds which is now the second longest at 60 weeks and continues to be the fastest on record with investors pulling -$3.7 billion per week.
In the most recent 5-day period ending April 20th, total equity mutual funds put up net outflows of -$4.0 billion, trailing the year-to-date weekly average outflow of -$1.6 billion and the 2015 average outflow of -$1.6 billion.
Fixed income mutual funds put up net inflows of +$4.3 billion, outpacing the year-to-date weekly average inflow of +$1.8 billion and the 2015 average outflow of -$475 million.
Equity ETFs had net redemptions of -$1.9 billion, trailing the year-to-date weekly average outflow of -$1.0 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$1.5 billion, trailing the year-to-date weekly average inflow of +$1.8 billion but outpacing the 2015 average inflow of +$1.0 billion.
Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.
Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:
Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.
Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:
Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the industrials XLI ETF gained +$399 million or +6% last week.
Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$11.7 billion spread for the week (-$5.9 billion of total equity outflow net of the +$5.7 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$977 million (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)
Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:
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Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email firstname.lastname@example.org.
Polls show that Trump is heading for a big win in IN, as he moves closer to being the presumptive Republican nominee. Ted Cruz hopes that the alignment of Republican stars - including the tepid support of IN Governor Mike Pence - will help him pull off a victory that breaks Trump's streak.
John Kasich has already abandoned IN, but still looks likely to receive a sizable number of votes - especially those from anti-Trump voters who are critically needed by Cruz to put him over the top. If Trump wins big tonight, he will only need ~50% of the remaining delegates to clinch the nomination - and momentum already has propelled him to a 30+ point lead in CA.
It's not just losing primaries that has Cruz's campaign concerned - his strategy of winning the nomination on the second ballot may also be crumbling. To date, Cruz has been very successful at nabbing delegate spots for his supporters in behind-the-scenes maneuvering at state conventions, but the loyalty of these supporters once they become unpledged is increasingly being questioned.
Combined with his underperformance in PA, and a loss in IN - a delegate desertion would sound the death knell for Cruz's campaign even before Trump potentially hits 1237.
For the first time in months, Hillary Clinton's campaign out-fundraised Bernie Sanders $36 million to $26 million. Sanders soldiers on and vows that there will be a contested convention, but if he loses in IN today he will be hanging by a thread, and will continue to be the thorn in Clinton's side.
If he can pull off a win, it will change the narrative back in his favor, especially going into KY, NE, and WV - all states that are more favorable terrain to him - but he would have to take 65 percent of the remaining delegates to clinch the nomination. A Clinton victory allows her to keep her focus on Donald Trump and the big picture, but it may come down to the bottom of the ninth tonight...
With retirement on the horizon, Minority Leader Harry Reid has expressed certainty that Democrats will retake the Senate this fall, and is confidently passing the leadership reigns over to Sen. Chuck Schumer. Despite Schumer's almost certain re-election in deep blue NY, he has gone all out on fundraising, and currently has $26 million on-hand.
This war chest should serve as a potent weapon for Schumer, who can funnel millions of dollars to candidates and committees - and help ensure Reid's prophecy comes true.
Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:
"Isn’t the Fed burning the US Dollar and Wall St begging for more fun? Not in Japanese and European stock “chart” terms; Euro testing $1.16 vs. USD this am (almost a 4 standard deviation move) and European Equity markets remain in crash mode from their 2015 highs (draw-downs: DAX -20%, Spain’s IBEX -25%, Italy’s MIB -25%)"
So, as the Fed burns the buck, consider the delicious irony of the U.S. Treasury adding China, Germany, and Japan to a "watchlist" of currency manipulators.
There's always a bull market somewhere, right?
"Instead of down -20% to -27%, Gold (GLD) is already +22% for the YTD! That remains in our Top 3 Macro Long Ideas (Macro Themes Deck) alongside the Long Bond (TLT) and Utilities (XLU) – these ideas all reflect the same view that #GrowthSlowing globally (i.e. economic gravity) can’t be fixed by a central market planning #BeliefSystem this time."
We think a breakdown in the central planning #BeliefSystem will eventually hit the U.S. (investors have already lost faith in central bankers at the ECB and BOJ). A precarius thing to note: The market has largely priced-in a dovish Fed.
As Hedgeye Senior Macro analyst wrote in a recent Early Look, we would need to see a collapse in both growth and inflation expectations for the Fed to provide additional easing and further prop up the markets from here but that would weigh heavily on asset prices.
"We recognize that this is the most risky view to take because the Fed can do whatever it damn well pleases. It’s a board of unelected, unaccountable bureaucrats and, for all we know, President Obama gave Janet Yellen (a known Democrat) marching orders to keep the stock market inflated into the general election.
Who knows? Anything can happen. But fading what is already priced in is where the money will be made from here."
Undoutedly, as the year plays out, there is much more to be revealed. However, there's one thing that we're crystal clear on:
Takeaway: A breakdown of S&P 500 earnings by sector reveals 6 of 10 have reported negative earnings growth.
For Q1 Earnings Season to-date, 315 of the 500 companies in the S&P 500 have reported results:
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