Stocks look ‘resilient’ as investors pour $120 billion into equity ETFs in the face of rising rates, BlackRock says

trader Gregory Rowe
  • Inflows into equity ETFs of $120 billion are outpacing inflows to bond ETFs, BlackRock said in a note Monday. 
  • Stocks and bond yields generally have been moving higher simultaneously as the US growth picture improves. 
  •  Value and cyclical stocks are finding favor among investors, said the asset manager. 
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Inflows into the equity market are strong despite the spike up in rates as investors respond to economic growth prospects by embracing risk and not staging a “taper tantrum”, BlackRock said in a note Monday.

Equity exchange-traded funds have raked in $120 billion so far this year, outpacing inflows into fixed income ETFs by 4:1, according to iShares data outlined by Gargi Chaudhuri, head of US iShares markets and investments strategy at BlackRock.

That rush of investor cash into equities has taken place at the same time that Treasury bond yields have made notable moves higher, including a jump past 1.5% on the 10-year yield last week.

“That’s not because the stock and bond markets have become untethered, but rather because rates are moving for the right reason: stronger U.S. growth,” wrote Chaudhuri in the note, describing equities as “resilient”. 

Economists have broadly been increasing their forecasts for economic growth as vaccinations to prevent COVID-19 continue to accelerate. Meanwhile, House representatives in Washington last week passed a proposed $1.9 trillion stimulus bill, sending it to the Senate for approval. The US economy in 2021 could grow by the most in decades, said John Williams, president of the Federal Reserve Bank of New York, last week.  

“Unlike previous bouts of rising rates (like the Taper Tantrum of 2013), equity investors have generally responded with risk-on reallocations into pro-cyclical exposures this time around,” said Chaudhuri.

The response by investors could also be explained by real rates remaining “extremely accommodative” at around -70 basis points after the recent rise, she added. Real interest rates exclude the effects of inflation.

ETFs skewed towards value and cyclical stocks will keep benefiting as rates continue to rise and the yield curve steepens, Chaudhuri said, “with over $8 billion of ETF inflows to the value factor corroborating this view.” The inflows of $8 billion represent nearly as much as the previous six months combined, BlackRock said.

Meanwhile, earnings forecasts for 2021 and 2022 should increase through the spring and summer, “further cushioning in the impact of the rise in Treasury yields,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a Monday note.

Shepherdson said the spread between Treasuries and the S&P 500 earnings yield recently fell to 115 basis points after widening by 363 basis points at the peak.

“A narrower spread is no guarantee of future equity gains, but it ought to provide of measure of comfort,” he wrote.

This article and headline has been corrected from an earlier version that said $8 billion has flowed into ETFs this year. That figure refers to inflows into value stock ETFs. The correct figure for year-to-date inflows into ETFs is $120 billion. 

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Jamie Dimon says ‘gangbuster’ growth is in store for the US but too much fiscal stimulus is a risk

Jamie Dimon 2019
Jamie Dimon, Chairman & CEO of JP Morgan Chase & Co, speaks during the Bloomberg Global Business Forum in New York on September 25, 2019. (Photo by Kena Betancur / AFP) (Photo by KENA BETANCUR/AFP via Getty Images)

  • The US economy is on the verge of a rapid expansion this year and in 2022, said the billionaire head of JPMorgan Chase. 
  • CEO Jamie Dimon said unemployed and small businesses “definitely need help” from US officials to cope with the COVID pandemic. 
  • There is a risk of overheating from too much fiscal stimulus, he said.  
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The world’s largest economy looks to be set for a “gangbuster” pace of expansion through next year but US officials should be cautious about unleashing too much fiscal stimulus into the system, said JPMorgan CEO Jamie Dimon said Monday.

His observations come as a $1.9 trillion economic stimulus proposal headed toward a vote in the US Senate just days after lawmakers in the House of Representatives passed the bill.

A new round of stimulus would follow the $900 billion bipartisan coronavirus relief package signed off by then-President Donald Trump in late December

“There’s a very good chance you’re going to have a gangbuster economy for the rest of this year and easily into 2022,” said Dimon during an interview with Bloomberg TV. “And the question is, ‘does that overheat everything?’ and we just don’t know yet,” he said.

In terms of that risk, Dimon said, “I wouldn’t worry too much about it, but I would suspect there’s a pretty good chance that you’re going to see rates going up and people starting to worry about that at one point.”

Dimon quickly added: “I’ve been very clear: I would not buy 10-year Treasuries, just so you know.”

Before his prediction of strong economic growth for this year and next, Dimon said there are ‘”legitimate complaints” that the current stimulus bill contains items “that have nothing to do with COVID,” but that many Americans do need financial assistance to cope with the pandemic.

“Unemployed, they definitely need help. Small businesses, they definitely need help,” the JPMorgan chief said. 

“I don’t know if you know this but [in] half the states, revenues went up. They didn’t go down. Do they need help? Are we just throwing money at people at one point?”

He urged officials in his remarks to “try not to overdue it too much.”

 

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