We’ve Only Just Begun

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

In 1970, the Carpenters released the song “We’ve Only Just Begun”, as part of the album “Close to You”. I mention this because there are a couple of lines from the song that I believe speak to participants in our current capital market environment. “Sharing horizons that are new to us. Watching the signs along the way.” As I wrote recently, it is a new day for many in our industry who haven’t lived through a protracted rise in US interest rates let alone worked in our industry since the last bond bear market ended in 1981. Everyone is looking for “the sign” that will make their crystal ball a little less foggy. I suspect that they haven’t found it yet given how surprised so many seemed to be when Fed Chairman Powell announced last Wednesday that the next rate move was likely to be 50 bps. We are still so confused by that market reaction since we’ve been regularly writing about the Fed’s intentions.

Want another potential sign? Bank of America strategists are out with a note highlighting the fact that during “the week through April 20, investors pulled $19.6 billion from U.S. large caps, the largest exit since February 2018.” This is in sharp contrast to the fact that nearly $100 billion had been invested into equities so far in 2022 continuing a trend of massive flows into US equities that we previously commented on in 2021. As we reported late last year, BofA had noted that record flows were pouring into US funds outpacing the total of the previous 19-years combined. Our market performance is driven by fund flows. Massive movements in equity fund flows will drive markets up or down, as either the stocks are bought boosting their price, or sold driving prices downward. It is a self-fulfilling prophecy. If we are finally seeing US equity fund flows reversing it could mean big trouble for the broad market. We’ll continue to monitor this trend to see if April’s withdrawals continue into late Spring.

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