SPY Back Near Highs. Is the Pullback Over?
The fund has rallied since dipping in April.
After a relentless rally that pushed the $511 billion SPDR S&P 500 ETF Trust (SPY) higher by more than 10% in the first three months of the year, the market hit a bump in April.
But that pullback of 5.5% was short-lived. Three weeks after hitting its April low, SPY is less than one percent away from its highs.
The inflation fears that prompted stocks to sell off last month have abated, and rate cut expectations have started to pick up again.
Is the worst behind us?
Judging by the hefty flows into ETFs, investors seem to think so.
Over the past month, U.S.-listed exchange-traded funds have picked up $40 billion of new money, with around half of that going into U.S. equity ETFs like the $444 billion Vanguard S&P 500 ETF (VOO), the $260 billion Invesco QQQ Trust (QQQ) and the $43 billion iShares MSCI USA Quality Factor ETF (QUAL).
If investors were fearful, we might have seen a slowing of ETF inflows. Instead, investors kept on buying, pushing up year-to-date ETF inflows to $266 billion.
Inflation Concerns Linger
Still, inflation and rate worries certainly aren’t gone.
This year, investors have consistently underestimated the time it’ll take to get inflation firmly back to the Fed’s 2% target, and in turn, overestimated how quickly the Fed will cut rates.
There is also the outside risk that inflation remains stubbornly high well into 2024 and beyond, causing the central bank to rethink whether interest rates are restrictive enough to tame consumer prices.
For now, investors seem to be looking at the glass half full, with sentiment getting a boost from the incredible growth in profits and share prices for A.I.-related companies.
Whether that optimism can carry the market through the rest of 2024 remains to be seen.