In fact, if the economy manages to weather this latest growth scare, it will likely lift the Fed funds rate again at least once. That will put upward pressure on short-term interest rates, such as the two-year Treasury yield. However, longer-term rates, like the 10- and 30-year, may not be as responsive to the Fed’s hikes.
If the Fed overtightens, the yield curve—especially the widely watched two- to 10-year part of the curve—could invert, igniting recession fears.
ETF Inflows Hit Record Levels
Inflows for U.S.-listed ETFs slowed last year. From 2017’s record $476.1 billion, inflows in 2018 dropped to $315.4 billion. But even with the smaller haul, 2018’s inflows were the second-largest ever.
A precipitous decline in the U.S. stock market and a roller-coaster ride in interest rates didn’t stop investors from plowing billions into ETFs. Even during December, a horrendous month for equities, investors added nearly $50 billion to ETFs.
If 2019 is a better year for markets, as I suspect it will be, investors will continue bolstering their ETF positions. It wouldn’t be surprising to see annual inflows for this year to come in close to or exceed the record from 2017. A monthly pace of $42 billion/month will put inflows at $500 billion by the end of the year.
Bitcoin Approaches $1,000
My prediction on bitcoin from last year was off the mark. The cryptocurrency bubble didn’t get bigger, as I speculated it would. Instead, it burst in spectacular fashion in 2018, much earlier and faster than I imagined it would.
That’s the story of bubbles. You never know how big they’ll get or when they’ll burst—only that one day the music will stop.
If 2018 was the year the bitcoin bubble burst, what does 2019 bring? I suspect prices will continue trending lower, all the way to $1,000. That’s complete and utter wild speculation on my part. No one knows where bitcoin prices will bottom out (or if they already have).
But down 95% from the high—similar to the decline in shares of Amazon during the bursting of the dot-com bubble—sounds right. Perhaps from there bitcoin can begin a bottoming process, and speculative traders can begin wading in.
Unfortunately, there’s still no U.S.-listed bitcoin ETF available for purchase, but there are ETNs available in Europe.
New King Of The ETF Hill: IVV
I’m going way out on a limb with this one, and I have a strong feeling that this prediction is a few years too early. Still, based on the trends we’ve seen in recent years, it seems inevitable that the iShares Core S&P 500 ETF (IVV) will eventually surpass the SPDR S&P 500 ETF Trust (SPY) as the world’s largest ETF.
In 2018, SPY had outflows of $16.5 billion, compared with inflows of $18.5 billion for IVV. In the year before that, SPY had inflows of $10.6 billion, compared with inflows of $30.2 billion for IVV.
The gap in assets under management between the two has been closing fast, as long-term investors gravitate toward the cheaper IVV. Today it stands at $91 billion—SPY with $242 billion in AUM and IVV with $151 billion.
Don’t get me wrong; $91 billion is still a huge chasm. It’d take something like $45 billion of outflows for SPY, and $47 billion of inflows for IVV to close it this year. Unlikely? Sure. But definitely not impossible.