TLT closed on Friday at $125.20 on a steep gap down, and with yields at current levels, the U.S. Treasury Bond Market has been monitored closely by many as a sign of the risk aversion tolerance of the public for the past several years, and with great success and accuracy. No doubt, a further plunge in Bond prices (and thus rising yields), would likely correspond with a continued rally in equities across the broad indexes. Additionally, the U.S. Dollar remains a valuable proxy as well, as UUP (PowerShares U.S. Dollar Index Bullish) staggered on Friday, dropping a notable 1.36% and closing at its 50 day moving average. The Euro always seems to spring to life on overnight headlines that come out of Europe, and conversely fade quickly when “negative” news permeates the airwaves.
From a pure “fund flows” standpoint last week, we are left with a bit of a mixed message, despite the positive action on the tape from Friday as well as the improving technical picture for equities. Since asset flows in ETFs are not necessarily “dynamic” to the exact minute, trading day, or even week that given buying/selling activity occurs in a singular ETF, we will likely see a clearer picture of “what recent flows are telling us” by the middle of this week. We did see heavy activity however in XLV (SPDR Healthcare), which reeled in more than $400 million in new assets during the week following the “Obamacare” decision.
XLV is dominated by large cap Pharma names including JNJ (12.27%), PFE (11.80%), and MRK (8.19%). Additionally, several fixed income ETFs were also more active than usual, including LQD (iShares Investment Grade Corporate Bond) which took in more than $250 million in assets, and BOND (Pimco Total Return) which reeled in an impressive $200 million plus, and being a newer fund to the ETF landscape, achieving this feat in a matter of a day or two in this current market environment, deserves attention. HYG (iShares High Yield Corporate Bond) also ranked among the largest inflows on the week, attracting nearly $200 million in new assets. Equity ETFs that were popular last week among buyers included IVV (iShares S&{ 500), VTI (Vanguard Total Stock Market), XLE (SPDR Energy), DEM (WisdomTree Emerging Markets Equity Income), VNQ (Vanguard REIT), and XLI (SPDR Industrials). Together, the funds collected approximately $1 billion last week.
On the redemptions side, SPY (SPDR S&P 500) and QQQ (PowerShares QQQ) led the way in losing assets, as more than $2 billion collectively left these two funds. Additionally, we witnessed selling pressure in DIA (SPDR DJ Diamonds), SPLV (PowerShares S&P 500 Low Volatility) and FXI (iShares China) as well for most of last week.
This coming trading week, although abbreviated in terms of time with Wednesday, July 4th, being a market holiday (and a much needed respite for us weary market participants and observers), will likely be pivotal in terms of determining if equities can maintain their posture at or above current technical levels. We will watch the 1363 level (previous intraday SPX high in June) closely this week, for signs if this rally has legs, or will we simply fall back down within our trading range as has occurred countless times since May.
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