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Are Stock ETF Outflows a Warning Sign for Market?


Recent selling in U.S. equity-based ETFs could be a red flag for the rally as some investors lock in profits.

U.S. stock ETFs have seen outflows of $5 billion over the past month as “capital has been leaving this particular piece of the ETF ecosystem,” says ConvergEx Group chief market strategist Nicholas Colas.

He watches ETF flows because they have been a better market indicator than buying patterns in mutual funds the past year.

For example, the S&P 500 is up 25.8% over the past 12 months. However, investors in U.S. mutual funds which focus on domestic stocks have pulled a whopping $188 billion in assets from these products.

Meanwhile, ETFs that invest in U.S. equities have recorded inflows of $51.9 billion, so ETF investors “seem to have the right call,” Colas wrote in a note.

“Money flows into all types of investments are notoriously seasonal. August is a low volume month to boot. So a few weeks of money out the door isn’t necessarily the death knell for U.S. stocks,” the strategist said. “But given that ETF money flows have been decently prescient indicator of overall stock market direction for several years, it is worth putting into your toolbox of indicators.”

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The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.