Investors have maintained a risk-on attitude toward the market as U.S. equities are set for their best month since February, even in the face of a traditionally weak period of the year, trimming safe-haven bets and defensive exchange traded funds.
“It’s something to be mindful of — that there’s a seasonal risk into August. You pair that off with some of the low volatility, that could be a trap for a higher move,” Strategas Research technical analyst Todd Sohn told CNBC.
August has been the worst month of the year for the Dow and the S&P 500 as both indices were lower half of the time and averaged declines of about 1.5%, according to Kensho data. However, Sohn pointed to a historical trend where the market typically does better than average when the month of July has been strong.
“The good news is when you’re in an uptrend those returns are skewed higher,” Sohn said.
ETF investors also exhibited their risk-on sentiment, trimming safe-haven bets like gold, U.S. Treasuries and low-vol factor strategies.
Among the least popular ETF plays over the past week, the SPDR Gold Shares (NYSEArca: GLD) saw $976 million in net outflows, iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) experienced $702 million in outflows, iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV) lost $224 million and iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) trimmed $171 million, according to XTF data.
Gold and U.S. Treasuries have traditionally acted as safe haven plays during periods of increased volatility, with investors turning to the more stable assets to ride out any storms. Meanwhile, the low-volatility, smart beta ETF play has also grown in popularity in recent years as a way to maintain stock exposure for the more conservative investor.
Related: U.S. Stock ETFs Set for Strongest Month Since February
However, these safety plays have become less popular in face of a falling volatility and an ongoing U.S. bull market that is being fueled by strong corporate earnings.
Around 57% of S&P 500 companies have reported second quarter results and 73% of those that have reported also beat the their estimates, with a blended growth rate of 9.1%, according to FactSet data.
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