A weak jobs report last Friday helped send investors out of exchange traded funds and high-yield corporate bonds as they looked for investment vehicles giving them exposure to commodities and high-performing equity players, data from ETFTrends.com show.
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According to the website’s publisher $4.6 billion moved out of the SPY S&P 500 ETF while the iShares iBoxx & High Corporate Bond ETF saw outflows of $749 million. Still, Wall Street will get a broader look at where investors fled and where they put more money to work when weekly data from Lipper and EPFR are released later this week.
Concerns over a sharp slowdown in job creation last month had investors second guessing the health and strength of the U.S. economy. The Labor Department reported just 38,000 net new jobs were added to the economy in May, far below the expectations for 164,000 jobs. While data on both the housing market and the American consumer have steadily improved over recent months, the unexpected drawdown in the labor market took investors by surprise.
Worsening anxiety was how that data would impact the Federal Reserve’s plan to increase interest rates at some point later this year. Investors widely anticipate the U.S. central bank will move on rates for the first time since December in July thanks in part to a slowly improving economy, but also to a referendum overseas that will ask voters whether the U.K. should exit the European Union. That vote will take place a week after the Fed’s June policy-setting meeting, which happens next Tuesday and Wednesday.
Tom Lydon, ETFTrends.com publisher, told FOX Business Network’s Liz Claman on Wednesday the next 30 days or so will be crucial for Wall Street not only because of the economic data that will continue to trickle out, or the looming Brexit vote, but also because investors will get the latest read on the health of Corporate America.
In short – there will be no lack of information to send investors up or down the markets.
“A month from now we’re going to be hearing about earnings for the second quarter. I think it’s going to be really telling if we see slow, tepid growth. We’re going to see more money going out of mutual funds and ETFs,” he said.
Lydon said the latest outflows indicate investors are already on edge, but there are bright spots risk-averse participants in the market can look to including options in real estate and commodities.
“The Vanguard REIT ETF is actually doing much better [because] the Fed looks like it’s going to be slow at pulling the trigger on interest rates. That’s good for REITs. One sector of the market that’s been terrible this year is health care, and now all of a sudden it’s looked to be a value play,” he said.
To that point, according to Lydon, the Vanguard REIT Index Fund saw $400 million in inflows last week, while the Health Care Select SPDR gained $340 million in new funds, and the iShares JPMorgan U.S. Dollar Emerging Markets Bond fund added $370 million in new assets.
“With the money that’s raised from this cash [investors may take out of mutual funds and ETFs], there will be other opportunities,” Lydon said. “Gold for example, the biggest inflows we’ve seen since 2009. They’ve had a pretty big bear market there and there might be some cool opportunities.”