The Party Is On: Investors Are Piling Into Risk Assets And Saying No To Treasuries

Stocks have been due for a rally, and coinciding with the historically strong month of October, the broad market S&P 500 has climbed nearly 5% over the last month, after falling 9% in September.

Is bullish sentiment back? ETF flows over the past week suggest the answer is yes.

What Happened: Bloomberg senior ETF analyst Eric Balchunas said on Twitter Thursday that this last week has “easily” been the most risk-on he’s seen in the ETF weekly flow leaderboard in months.

“Easily the most risk-on I've seen the ETF weekly flow leaderboard since July, total party atmosphere w/ ppl buying equities, tech, junk, momentum and NO TREASURIES,” Balchunas tweeted.

Easily the most risk-on I've seen the ETF weekly flow leaderboard since July, total party atmosphere w/ ppl buying equities, tech, junk, momentum and NO TREASURIES. pic.twitter.com/amzx00O9wI

— Eric Balchunas (@EricBalchunas) October 27, 2022

For the uninitiated, in risk-on situations, investors have a high-risk appetite and bid up the prices of assets in the market.

Given how the ETF market has developed over the past few years, capital has been pouring into all asset classes in 2022.

Investors have preferred fixed-income ETFs over the previous three months, but this trend has slowed during the past week.

The S&P 500 has staged a strong rally over the past week, rising gradually and adding 3.28%, with small-cap stocks outperforming and long-term treasuries losing 0.2%.

Ahead of the move in the ultra-short-term category earlier in the month, investors were taking a defensive stance with T-bills and floating rate notes. These conventional risk-off investments can be used to gauge investor sentiment.

That’s not what is happening now.

Investors are piling into risk-on equities as the market seems to be unfazed by the slew of tech earnings from titans like Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) and Meta Platforms Inc (NASDAQ: META) that have been missing analyst estimates.

For more context, the $13.7 billion influx last month was the highest monthly inflow ever recorded for the defensive ultra-short-term bond ETFs. The second-largest inflow, $8.7 billion, happened in March 2020, which was a month that was generally unfavorable.

Benzinga's Take: Since ETF flows are sometimes a bit of a lagging indicator, the current bullish figures may soon shift back to favoring ultra-short-term bond ETFs.

The current rally may have legs if risk asset prices, such as those of stocks, junk bonds and international equities, drift higher over the next two to three weeks and ETF flows continue to show risk assets performing well.

Photo: YanLev via Shutterstock