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Illustration: Rebecca Zisser/Axios

The U.S. stock market is up almost 20% this year, but investors have missed out on much of the rally. They've sold equities and piled into bonds and money market funds — effectively low-yield savings accounts — largely out of fear.

What's happening: Institutional money managers and retail investors around the world have pulled a net $140.6 billion out of equity funds in 2019, according to data from Lipper, which tracks $49.1 trillion of assets.

  • The "Twilight Zone" environment, in which equity prices have risen despite net selling of stocks by investors, is taking place all over the world.
  • Investors have bought bonds — a net $255.5 billion so far this year — even though more than $13 trillion of bonds currently hold negative yields, meaning investors lose money by holding them.

What it means: "People don't trust the stock market," Emily Roland, head of capital markets research at John Hancock Investment Management, tells Axios. "I'm more concerned about that than I am about the FOMO trade."

  • "We're seeing everybody embrace safety, which is fine, but from a long-term investing diversification standpoint, it doesn't end up working in your favor."

Details: Lipper's data shows a strong investor preference for safety, as investment grade and short-term government bonds have seen significant inflows, while risky high-yield — or junk — bonds have seen far less.

The returns have been just the opposite of the flows. MSCI's index of equity markets around the globe has risen 16.7% year to date, and MSCI's U.S. index is up 18.9%. High-yield bonds have delivered 9.5% returns for investors, according to Lipper, compared to investment grade bond funds, which have seen 6.2% return.

  • Safe short-dated government bond funds have returned 2.4%, year-to-date, data shows.
  • Investors also have invested a net $148.6 billion into money market funds that collectively yielded less than 1% this year.

Between the lines: "This has been a very unloved bull market by investors,” Roland says. "That's another reason, though, maybe it has some legs left."

What's next? The second half of the year looks to present many of the same potential risks and possible upside as the first.

Go deeper: Global economic whiplash

Go deeper

Mike Allen, author of AM
31 mins ago - Politics & Policy

Biden adviser Cedric Richmond sees first-term progress on reparations

Illustration: "Axios on HBO"

White House senior adviser Cedric Richmond told "Axios on HBO" that it's "doable" for President Biden to make first-term progress on breaking down barriers for people of color, while Congress studies reparations for slavery.

Why it matters: Biden said on the campaign trail that he supports creation of a commission to study and develop proposals for reparations — direct payments for African-Americans.

Cyber CEO: Next war will hit regular Americans online

Any future real-world conflict between the United States and an adversary like China or Russia will have direct impacts on regular Americans because of the risk of cyber attack, Kevin Mandia, CEO of cybersecurity company FireEye, tells "Axios on HBO."

What they're saying: "The next conflict where the gloves come off in cyber, the American citizen will be dragged into it, whether they want to be or not. Period."

Cedric Richmond: We won't wait on GOP for "insufficient" stimulus

Top Biden adviser Cedric Richmond told "Axios on HBO" the White House believes it has bipartisan support for a stimulus bill outside the Beltway.

  • "If our choice is to wait and go bipartisan with an insufficient package, we are not going to do that."

The big picture: The bill will likely undergo an overhaul in the Senate after House Democrats narrowly passed a stimulus bill this weekend, reports Axios' Kadia Goba.

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