The Passive-Investing Bid for U.S. Equities Is Roaring Back

(Bloomberg) -- It’s January all over again for the biggest exchange-traded funds that track the S&P 500 Index.

Last week about $5.7 billion poured into ETFs from State Street Corp., BlackRock Inc. and Vanguard Group Inc. linked to the U.S. equity gauge, the most in more than three months. At the same time, the S&P 500 itself rose 2.4 percent, the biggest gain in nine weeks.

Quarterly reports that consistently testified to Corporate America’s earnings power and plans for dividends and buybacks may have emboldened investors to return to risk assets.

"At first, earnings season was a ‘sell the news’ event but the market never really cracked despite some strong efforts," said Christopher Harvey, head of U.S. equity strategy at Wells Fargo Securities, in a note to clients Friday. "Recently, it seems like there’s been a shift in mentality to buy strength."

An outbreak of equity euphoria early in 2018 propelled the U.S. benchmark to its longest technically overbought streak in 21 years, and made betting on further gains via options increasingly expensive. The ETF trio -- SPY, IVV, and VOO -- took in $26 billion during the first five weeks of this year, and currently boasts over half a trillion in assets collectively.

Investors slammed the sell button on passive products in February amid the return of volatility that saw a record jump in Wall Street’s fear gauge. The world’s largest ETF -- State Street’s S&P 500 offering (ticker SPY) -- saw a record $23 billion flee in the week ending Feb. 9, erasing the previous nine weeks’ worth of accumulations.

©2018 Bloomberg L.P.

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