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Even Threats of War Can’t Shake Investor Demand for U.S. Stocks

Claire Ballentine

(Bloomberg) -- ETF investors are a hardy bunch, judging by their reaction to the recent flurry of geopolitical headlines.

Rather than flee the market or throw money into havens, they’ve plowed capital into exchange-traded funds that stand to benefit from any escalation of tensions. The Industrial Select Sector SPDR Fund, or XLI, which owns manufacturers including defense contractors, has absorbed about $1.8 billion over the last five days. It was the best streak of inflows since January 2018, data compiled by Bloomberg show.

Meantime, energy ETFs -- such as State Street Corp.’s Energy Select Sector SPDR Fund, ticker XLE, and United States Oil Fund LP, ticker USO -- saw an initial spike in demand wane quickly. Appetite for the SPDR Gold Shares ETF, or GLD, was also short-lived. The iShares 20+ Year Treasury Bond ETF, or TLT, has seen outflows this week.

That’s a sign of just how bullish many stock investors continue to be in 2020 even as shares trade near all-time highs. While a U.S. airstrike that killed a top Iranian general sent shock waves through global markets last week, equities have quickly reversed course, especially after President Donald Trump backed away from further threats on Thursday.

“History has shown us that geopolitical risk rarely disrupts U.S. markets for long,” said James Pillow, managing director at Moors & Cabot Inc. “In fact, one could statistically argue most have been buying opportunities.”

Traders also added cash to high-yield debt, pouring $138 million into the Xtrackers USD High Yield Corporate Bond ETF -- the most since June 2018.

--With assistance from Tom Lagerman.

To contact the reporter on this story: Claire Ballentine in New York at cballentine@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rachel Evans, Rita Nazareth

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