Investors have poured more money into US equity funds this week than at any time since the 2008 financial crisis, with the value of the benchmark S&P 500 index soaring to a record $15tn.
As Wall Street touched fresh record highs, buoyed by assurances from Ben Bernanke, Federal Reserve chairman, that the central bank will do everything it can to support the economy, the latest fund flow figures show a huge wall of money coming into shares.
“We have really seen confidence returning among personal investors,” said Michael Turner, head of global strategy and fund manager at Aberdeen Asset Management. “Stronger economic data and softer words by the Fed have boosted confidence.”
Some $19.7bn was invested in global equity funds in the past week, the most for six months, while $700m was pulled from bond funds, according to figures from EPFR, which tracks mutual funds and exchange traded fund flows.
The $17.5bn flowing into US equity funds was the most since June 2008. Around $6.5bn of this went into State Street Global Advisors’ popular “Spider” ETF, which tracks the S&P 500 index.
Fears have been growing that the Fed’s plans to begin “tapering” its emergency bond purchases this year could lead to a rout in bonds that would send market interest rates sharply higher, potentially destabilising the US recovery and wider financial markets.
But reassuring remarks from Fed officials including Mr Bernanke, combined with a raft of healthy earnings numbers, have revived investor confidence.
Bumper earnings numbers from big US banks this week have helped propel financial stocks sharply higher and boosted optimism in the US’s economic prospects.
On Thursday Morgan Stanley followed Goldman Sachs and JPMorgan Chase in reporting strong profits. Their shares are up 5 per cent this week, while the S&P 500 index set a record intraday high of 1,693.12 on Thursday.
Wall Street now expects second-quarter earnings for financials to be 24 per cent higher from the same quarter a year ago. That has jumped from an estimate of 16.9 per cent at the end of June.
The week saw $1.7bn of outflows from investment grade debt funds and $1.1bn of outflows from Treasuries as bullish investors turned away from assets regarded as “safe”. High-yield bond funds saw $4bn of inflows, the largest since October 2011.
But emerging market debt funds continued to suffer, with a further $1.3bn worth of outflows. The emerging market debt markets were hit hard earlier in the year when the markets sold off sharply on expectations of Fed “tapering”.
Floating-rate debt funds saw their 56th consecutive week of inflows, according to the same Bank of America data, as investors continued to look for assets that protect them from rising interest rates.
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