Longest Outflow Streak from U.S. Equities Since 2004
The growing political turmoil in the country is making investors jittery. With two serious financial crises looming over the economy in the coming weeks—one being the approaching debt ceiling, and the other being the delay in President Donald Trump’s promised tax reforms—investors are already beginning to panic.
Bank of America Merrill Lynch (BAML) has found that U.S. equity funds are currently witnessing the longest streak of investment outflow in 13 years. Investors are taking their money out of U.S. equities and looking for investment opportunities abroad.
Over the past week, $2.6 billion worth of investments have been withdrawn from U.S. equities, according to data analyzed by BAML. In particular, U.S. tech stocks, despite being the most sought-after investments earlier this year, are turning out to be the biggest losers in the current investment outflow. U.S. tech equity funds have lost a good $600.0 million in the past week.
Meanwhile, America’s loss has been the world’s gain. While U.S. equities lost these investments, global equity funds attracted them. Since the end of June, investors have poured $36.0 billion into global equities, particularly in Japan, Europe, and emerging markets. Meanwhile, U.S. equities shed $30.0 billion in investor money during the same period.
All the talk about a potential government shutdown has thrown a scare into the markets. Analysts right, left, and center are predicting a high probability that federal operations might be forced to come to a halt under the unpredictable president running the show.
Evidently, investors are dumping U.S. stocks to move their money into safer investments in countries with lower levels of political uncertainty.
Likewise, American politics is also casting a shadow of doubt over American Treasuries’ safe-haven status. American Treasury securities, which have long enjoyed the status of the safest sovereign debt investments, may now be at the verge of default.
America is approaching its federally-mandated debt ceiling and can no longer service its payments if the debt ceiling is not raised. While political reassurances are coming in that the debt ceiling will inevitably have to be raised, uncertainty is continuing to grow as we approach the deadline.
The S&P 500 Index has already tanked one percent this month, despite posting robust gains through the first half of the year.
The investor community has all eyes set on Capitol Hill now as policymakers take on two crucial decisions about tax reforms and the debt ceiling in the coming weeks.
“U.S. equities suffer longest outflow streak since 2004: BAML,” Reuters, August 25, 2017.