Tom Lydon, CEO of ETF Trends, recently appeared on Fox Business to discuss record inflows into ETFs in the first half of 2021. Over $900 billion have flowed into mutual and exchange traded funds (ETFs) so far this year, smashing the record from all of 2020 combined.

While the money flowing in continues to set precedents, it’s being invested has shifted this year. Lydon explains: “The big difference… is that most of the money last year went into bond funds.”

Investing in bonds has traditionally been considered a safe bet for many as they tend to be less volatile and more predictable than stocks overall.  Recent upticks in inflationary signals have many investors concerned though, as inflation typically has adverse, negative effects on bonds.

“Investors and advisors are really concerned about inflation. We know what rising interest rates can do to bonds,” Lydon said.

When the Fed met last month, Chairman Powell left the impression of being amenable to adjusting its monetary policy if inflation looked to be continuing its rise, something that, as of now, the Fed is taking a wait-and-see approach on. They are set to meet on Wednesday.

With money moving away from bonds, more is flowing into equities. “Most people are investing money into stock, stock equity ETFs,” Lydon said. Current inflows into ETFs have already beaten the $509 billion seen in all of 2020 as investors pivot to equities with fears of inflation continuing to linger.

Lydon believes that it’s good news that most people are “investing in U.S. based ETFs even though 55% of the global stock market capitalization is outside the U.S.” He observed that “most investors continue to have this home country bias.”

With several of the FAANG stocks set to report this week (Facebook, Amazon, Apple, Microsoft), markets are up thus far; 88% of earnings reported for this earning season have been positive. The FAANGs, along with Microsoft and Tesla, account for 23% of the large-cap growth that is being seen currently.

Despite record earnings reports and the markets hitting new highs, however, financial advisors continue to be concerned about inflation and stock valuation. Some believe that what is currently being experienced isn’t the reflationary trade of a recovering economy but instead is inflation spiraling out of control.

For more market trends, visit ETF Trends.