Money Flowing Amid Selloff With S&P ETF Getting $7.6 Billion

Aug 01, 2014 4:25 pm ET

(Updates prices in 5th, 7th and 8th paragraphs.)

Aug. 1 (Bloomberg) -- Whatever the cause of this week’s spasm in stocks, it’s failing to end investors’ affinity for the biggest American companies.

The SPDR S&P 500 ETF Trust, the exchange-traded fund tracking the benchmark gauge for U.S. equities, saw $7.6 billion in deposits this week through yesterday, according to data compiled by Bloomberg. That includes $6.1 billion on July 30 -- the most since September 2011 -- which arrived a day before the Standard & Poor’s 500 Index dropped 2 percent for the biggest slump since April.

After mostly missing the first four years of the bull market that started in 2009, individuals are proving as stubborn about pulling out of the market even as concerns from Argentina’s finances to Portugal’s banks and U.S. inflation whip up volatility. While the buying shows demand for equities is strong, it’s no guarantee prices will rise, said John Manley of Wells Fargo Funds Management.

“Buyers of ETFs have gotten a little bit more positive and comfortable with the market, but it needs to be put into context,” Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a phone interview. “These flows don’t necessarily mean the broader equity market is going to move a specific way. There’s no lockstep pattern in this.”

The S&P 500 swung between gains and losses today before prices were dragged lower by regulators suspending trading of shares in a troubled Portuguese bank. The index slumped 0.3 percent as of 4 p.m. New York time.

Jobs Day

Economic data earlier today showed the U.S. economy added fewer jobs than forecast without stoking wage inflation. Employers in the U.S. added more than 200,000 jobs for a sixth straight month in July, the longest such period since 1997. The 209,000 increase missed the 230,000 gain forecast by economists.

The S&P 500 dropped 2.7 percent this week, the most since June 2012, after a global selloff started after companies from Exxon Mobil Corp. to Samsung Electronics Co. reported results that disappointed investors, Argentina defaulted and a Portuguese bank was ordered to raise capital.

The losses have shattered calm in a market that had seen the Dow Jones Industrial Average go 52 straight days without a 1 percent retreat. The Chicago Board Options Exchange Volatility Index has soared 34 percent to a three-month high of 17.03 this week.

ETF Flows

“I’m not completely convinced it’s the beginning of the end,” said Michael Ingram, a market strategist at BGC Brokers LP in London. “At the end of the day, U.S. companies are still bringing in the goods.”

For most of this year, equity investors have seen little volatility and steady gains, giving them confidence to put money back into the market. About $100 billion has been added to equity mutual funds and exchange-traded funds in the past year, 10 times more than the previous 12 months, according to data compiled by Bloomberg and the Investment Company Institute.

Investors have deposited cash to the SPDR S&P 500 ETF Trust in three of the past four months, data compiled by Bloomberg show.

The money added to the SPDR S&P 500 ETF this week may reflect more complex strategies than simply bullish investors buying stocks, according to Robert Stein, who helps oversee $900 million as president of Chicago-based Astor Investment Management LLC.

“People could be selling options against it,” Stein said in an interview. “They could be selling individual securities, doing the 80/20 thing where you buy the SPDRs and sell the 20 weakest stocks against it. That’s not really as indicative of buying as you would think.”

--With assistance from Trista Kelley in London.