Specifically, he said ETFs aren’t big enough in terms of assets to influence the stock market.
“How much these flows drive overall market performance is debatable,” O’Rourke said in the MoneyBeat post.
Still, ETFs have seen impressive growth. For example, the small-cap IWM as climbed 24% this year and has seen its market cap grow 65%. XLF, the financial sector ETF, has climbed 27%, and its market capitalization had grown by 85% this year.
“O’Rourke thinks these flows reflect investors bailing out of bonds after the spring selloff and chasing performance in the hottest corners of the stock market,” according to the report.
“Capital does not chase value, it follows performance, and stocks had been winning for too long to continue to escape notice,” writes Josh Brown at The Reformed Broker blog on the recent shift to equities from bonds. “Once the bonds started looking shaky, it had become a fait accompli.”
Full disclosure: Tom Lydon’s clients own SPY, IWM and QQQ.