Sep 25, 2019

September's market reversal on stocks and Treasury bonds

Dion Rabouin, author of Markets
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Data: Investing.com; Chart: Axios Visuals

Stocks have steadily risen over the course of September, with the S&P edging up by around 3% month to date, while safe-haven U.S. Treasury prices have fallen, pushing yields higher, in a sign of investors' increasing appetite for risk.

Why it matters: The pickup in stock buying so far this month has been a major reversal of the trend seen in markets for most of the year. Capital flows had largely been going into bonds and money market funds and out of stocks.

  • Equity ETFs and mutual funds saw net selling in every month of the year except February, for a total of $93.6 billion of outflows through July 31.
  • Bond ETFs and mutual funds had seen inflows every month this year without exception, totaling $258.5 billion.

By the numbers: U.S. equity ETFs have seen 3 straight weeks of net inflows, culminating with $18 billion of funds for the week ending Sept. 18, according to the Investment Company Institute.

  • Bond ETFs conversely saw their lowest inflows since the week ending Aug. 7 during that period, ICI data shows.

The big picture: Without more good news on the trade war, investment flows could reverse out of stocks in the coming weeks and back into bonds. The yield on the benchmark 10-year Treasury note has clearly reversed course after touching 1.90% on Sept. 13, dropping all the way to 1.65% late Tuesday.

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