If flows are a proxy for enthusiasm, excitement around 2023’s tech-driven equity rally waned over the last week.
Tech stocks and A.I.-related shares have obviously outperformed this year, and some strategists expect that trend to continue barring a Fed-engineered recession that deflates the burgeoning bubble.
But there’s some tentative evidence the mania is cooling at the margins. Tech-focused equity funds lost $2 billion over the latest weekly reporting period, according to EPFR.
As the figure above from BofA shows, it was the largest outflow in 10 weeks.
One can conjure an endless number of statistics and factoids to underscore the extraordinary nature of the A.I. “baby bubble,” as BofA’s Michael Hartnett calls it. For example, according to Hartnett, $1 in every $6 of global market cap is now concentrated in the so-called “Magnificent 7” which, if you’re keeping track on a weekly basis, are up some 65% YTD compared to barely 3% for the rest of the S&P 500.
Notably, and in keeping with the point mentioned here at the outset about flows and the perception of waning enthusiasm, US equity funds saw renewed redemptions in the week to June 21.
US-focused equity ETFs and mutual funds shed $5.7 billion after taking in nearly $38 billion over the prior three weeks. With the latest data, the net outflow for 2023 is $36.5 billion.
The DM-EM split for this year is now $63.3 billion into EM equities and $23.8 billion from DM stock funds. US large caps took in $2.3 billion last week, even as growth-focused funds shed $3.7 billion. Markets’ short-lived fascination with small-caps appeared to wane, as related funds lost more than $4 billion.
Panning out a bit from this week’s flows and editorializing around the broader macro-policy-markets nexus, Hartnett called the juxtaposition between higher yields and lower bank stocks “bad.” “Banks [and] commercial real estate still have recession vibes, especially in light of renewed central bank hikes,” he wrote, suggesting that whatever happens on a week-to-week basis, equity investors may be “stuck in growth stocks” until that situation resolves.
