Illustration: Sarah Grillo/Axios

Investors put their recession umbrellas back in the closet last week and broke out their party hats, as all three major U.S. stock indexes hit fresh record highs. The market is bullish on the expected pause in President Trump's trade war with China and market participants have plenty of ammo to drive stocks higher.

What's happening: Investors are moving back into risky assets like stocks in a big way and selling out of traditionally safe ones.

  • Last week global and European equity funds saw their largest inflows since December 2018, data from Deutsche Bank shows, while investors also moved strongly into long positions in oil, emerging market and high-beta currencies, and high-yield bonds.
  • U.S. investors also were bullish on U.S. equities, with stock inflows rising to their highest total since September, data from Bank of America Merrill Lynch shows.

Background: Prior to November, market participants had shunned stocks, preferring to sock money away in safe-haven investment grade and municipal bonds (on pace for their largest inflows ever) and money market funds, effectively savings accounts, which have attracted the most funds since 2009.

  • Analysis from Deutsche Bank shows outflows from equity funds and ETFs since December hit a record $330 billion, cumulatively.

Why it matters: The stock market's gains this year — up 23% year to date — have largely been driven by low volume and company share buybacks, rather than old-fashioned stock buying.

The big picture: “You could be contrarian and say [the money market flow is] positive, because if the market actually steadies itself and there’s a detente [in the trade war], that money’s going to go back into the equity market,” Quincy Krosby, chief market strategist at Prudential Financial, told CNBC last month.

Yes, but: Overall, the economy remains in much the same shape it was when investors were selling risk and buying safety.

  • The trade war, even with a "phase one" deal, has not been resolved and tariffs remain in place.
  • The U.S. and global manufacturing industries remain in recession.
  • Leading indicators, including housing and transportation, are still struggling.
  • With 89% of companies reporting, U.S. company earnings are on pace to post a 2.4% decline in Q3, according to FactSet.
  • U.S. jobs growth is slowing and companies are cutting back on investment.

The stock market may not have economic fundamentals on its side yet, but it has the Fed and a growing number of companies ready to buy back shares of their own stock.

  • The Fed has cut U.S. interest rates to a range of 1.50% to 1.75% and is buying $60 billion worth of Treasury bills a month to pump cash into the market.
  • That will provide a major boost of liquidity, similar to the central bank's quantitative easing program that helped stocks rebound from the financial crisis in 2009.
  • Year to date, cumulative buybacks are up 25% year over year, analysts at Bank of America Merrill Lynch note, and buybacks in Q3 increased 28%.

The bottom line: The potential for a trade war detente has gotten investors bullish, but the fundamentals have not caught up yet.

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Updated 29 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 4 p.m. ET: 12,813,864 — Total deaths: 566,790 — Total recoveries — 7,046,535Map.
  2. U.S.: Total confirmed cases as of 4 p.m. ET: 3,286,025 — Total deaths: 135,089 — Total recoveries: 995,576 — Total tested: 39,553,395Map.
  3. States: Florida smashes single-day record for new coronavirus cases with over 15,000 — Miami-Dade mayor says "it won't be long" until county's hospitals reach capacity.
  4. Public health: Ex-FDA chief projects "apex" of South's coronavirus curve in 2-3 weeks — Coronavirus testing czar: Lockdowns in hotspots "should be on the table"
  5. Education: Betsy DeVos says schools that don't reopen shouldn't get federal funds — Pelosi accuses Trump of "messing with the health of our children."

11 GOP congressional nominees support QAnon conspiracy

Lauren Boebert posing in her restaurant in Rifle, Colorado, on April 24. Photo: Emily Kask/AFP

At least 11 Republican congressional nominees have publicly supported or defended the QAnon conspiracy theory movement or some of its tenets — and more aligned with the movement may still find a way onto ballots this year.

Why it matters: Their progress shows how a fringe online forum built on unsubstantiated claims and flagged as a threat by the FBI is seeking a foothold in the U.S. political mainstream.

Lindsey Graham says he will ask Mueller to testify before Senate

Photo: Tasos Katopodis/Getty Images

Senate Judiciary Chairman Lindsey Graham (R-S.C.) tweeted Sunday that he will grant Democrats' request to call former special counsel Robert Mueller to testify before his committee.

The big picture: The announcement comes on the heels of Mueller publishing an op-ed in the Washington Post that defended the Russia investigation and conviction of Roger Stone, whose sentence was commuted by President Trump on Friday.