Sentiment and ETF inflows shine, market breadth dim
Track shifting investor sentiment through our latest ETF flows analysis.
The Gilded Age, in the 1880s, was a period of rapid industrialization and technological growth, driven by transformative industries like energy, railroads, and telecommunications. These sectors reshaped the US economy and boosted its global competitiveness.
And while this growth gave rise to powerful companies, creating monopolies and oligopolies, not all corners of the economy benefited. In fact, Mark Twain coined the term “gilded” as an alternative to “golden” to suggest a shiny surface hiding deeper problems.
Echoing the initial optimism of the Gilded Age, the US equity market has rallied 16% through the end of October and earnings have come in better than expected.1 Back then, people might have called this moment a “bang up to the elephant.” Today, we’d say things look “very good.”
But, as with the industrial titans of the Gilded Age, much of today’s market strength is concentrated in a handful of tech-focused firms—like the Magnificent Seven and AI leaders. And this narrow leadership masks some underlying weakness. In fact, 48% of US equity firms are down this year, and 70% are trailing the overall market.1
ETF trends illustrate the same alluring shiny facade. While sentiment is upbeat and inflows are robust, not all corners of the ETF market are gleaming with risk-on interest.
Big ETF, small-cap outflows
US-listed ETFs took in record $171 billion in October, pushing year-to-date inflows to $1.116 trillion, just $34 billion away from a new annual record and on pace to hit $1.4 trillion by year end.
This potential record-setting haul is driven by post-Liberation Day risk-on tactical buying across sectors, thematics, and non-US equities as well as record asset gathering among low-cost (+$523 billion) and active strategies (+$409 billion) this year.
But there is some weakness beneath the surface. Not everything is setting records. Nor is every risk-on exposure being bought. US small caps are the best example of this trend.
US small-cap ETFs had $2 billion of outflows in October. This was their eighth month of outflows in 2025 (an 80% outflow hit rate that ranks the worst all-time)—raising the year-to-date exodus to nearly $16 billion.
If this holds through the end of the year, this would be a record amount of outflows and their first annual outflow figure since 2011 (Figure 1). A different type of record than the broader industry.
It seems like ETF investors don’t care about small caps’ recent run, earnings coming in stronger than expected, and positive economic growth trends. The negativity expressed toward small caps may be a canary in the coal mine or a tempest in a teapot. If in the canary camp, one may theorize investors are concerned about tariffs’ impact on supply chains, inflation upside, a slowing labor market, and the potential for a steeper yield curve to constrain growth. In the teapot camp, the outflows can be partly explained by concentrated leadership at the top and the extreme focus on AI hyperscalers.
Tactical capital heads to sectors
Sectors had $11 billion in inflows in October, making it a top-10 month for these tactical tools. Sectors have now had six consecutive months of inflows, taking in over $30 billion during that period and more than offsetting the $19 billion of outflows around Liberation Day. As a result, sectors now have $20 billion of inflows year to date.
Inflows favored cyclicals (+$4 billion), defensives (+$3 billion), and tech-related (+$4 billion), as there was strength throughout the sector landscape in October. The Information Technology sector had the strongest flows (+$4 billion). Backed by robust earnings and strong price momentum, the interest toward Tech has been a year-long trend; the sector leads with nearly $14 billion of inflows.
Materials (+$3 billion) helped drive the cyclical sectors, while Industrials (+$1 billion) now has the second-most inflows of any sector for the year (+$6 billion). And while Energy has been a drag on the cyclical category all year (-$6 billion), the sector saw inflows in October.
On the defensive side of sectors, Utilities added $1.1 billion, as investors bought into AI adjacent and AI ecosystem plays. On the year, Utilities has almost $6 billion of inflows. As of now, this is a new annual record, outpacing the record in 2022 when inflows to Utilities were driven by recessionary fears, not AI-led optimism.
Figure 2: Sector flows
| In millions ($) | October | Year to date | Trailing 3-month | Trailing 12-month | Year to date (percent of AUM) |
|---|---|---|---|---|---|
| Technology | 4,060 | 13,556 | 5,284 | 17,042 | 4.43% |
| Financial | -265 | 2,592 | 777 | 10,095 | 2.77% |
| Health Care | 1,787 | -5,295 | 1,371 | -7,506 | -6.07% |
| Consumer Discretionary | -53 | -765 | 1,359 | -388 | -1.82% |
| Consumer Staples | -197 | 5 | 125 | -305 | 0.02% |
| Energy | 477 | -5,783 | 474 | -4,796 | -7.43% |
| Materials | 2,925 | -764 | 4,775 | -262 | -2.08% |
| Industrials | 1,146 | 6,117 | 4,295 | 8,116 | 11.54% |
| Real Estate | -65 | 1,161 | 741 | -207 | 1.47% |
| Utilities | 1,113 | 5,859 | 1,720 | 4,979 | 21.67% |
| Communications | -286 | 3,110 | 783 | 3,895 | 11.50% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of October 31, 2025. The top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Bond inflows set a new monthly record
Bond ETFs took in a record $51 billion in October, driven by ongoing interest in low-cost and active strategies. On the more macro and tactical level, three buying behavior trends are evident in the bond flows:
- Favoring the short to intermediate portion of the curve where there is more balance of yield relative to volatility at a time of rising term premiums on the long end from investors demanding a premium to incur inflation upside bias and rising deficits.
The $9.6 billion into short- and intermediate-term government bond ETFs represents 90% of all government bond flows in October. - Positioning for growth and carry even as credit spreads are well below historical averages and the majority of future returns are likely to come from the coupon. Credit sector flows remain positive as investors anticipate a conducive risk environment where spread widening is reduced from continued positive economic and fundamental growth.
Over $9 billion of inflows into credit-related ETFs was led by fixed rate credit exposures and a reversal of the trend in convertibles. - Seeking to mitigate inflation shocks as tariff related price pressures, supply chain constraints, and growth impulses from the One Big Beautiful Bill Act as well as Fed rate cuts may lead to inflation upside risks.
October marked the 10th month in a row of inflows for inflation-linked bond ETFs. This is the longest streak since 2021, and the $11 billion of inflows in 2025 is also the largest annual amount since 2021.
Figure 3: Fixed income flows
| In millions ($) | October | Year to date | Trailing 3-month | Trailing 12-month | Year to date (percent of AUM) |
|---|---|---|---|---|---|
| Aggregate | 20,606 | 136,510 | 51,300 | 159,228 | 21.86% |
| Government | 10,839 | 81,009 | 26,063 | 81,791 | 19.32% |
| Short term | 5,971 | 52,898 | 14,084 | 63,942 | 23.97% |
| Intermediate | 3,678 | 22,046 | 9,041 | 22,130 | 15.65% |
| Long term (>10 yr) | 1,189 | 6,064 | 2,938 | -4,281 | 7.19% |
| Inflation-protected | 897 | 10,829 | 3,363 | 10,380 | 19.23% |
| Mortgage-backed | 136 | 20,047 | 3,805 | 25,635 | 26.12% |
| IG corporate | 6,745 | 28,633 | 21,602 | 35,300 | 10.66% |
| High yield corp. | 3,305 | 21,930 | 7,722 | 23,772 | 25.40% |
| Bank loans and CLOs | -1,240 | 12,379 | 3,122 | 20,870 | 26.41% |
| EM bond | 541 | 1,732 | 2,879 | 278 | 6.15% |
| Preferred | 229 | 1,724 | 1,245 | 2,069 | 4.55% |
| Convertible | 413 | 160 | 359 | 967 | 2.27% |
| Municipal | 8,201 | 33,507 | 16,713 | 38,095 | 23.94% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of October 31, 2025. The top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Balancing the allure of gilded market returns
Despite concentration and numerous macro risks, from trade and the government shutdown to geopolitical conflicts, assets have outperformed cash in 2025. In fact, bonds have the largest excess return to cash in five years, while commodities are up double digits.2 Therefore, it’s been a good time to own multiple asset classes beyond just stocks.
There is also the curious case of the US return stream not being as exceptional—or golden—as it would appear. In fact, 76% of non-US countries (36 out of 47) within the MSCI ACWI Index are outperforming the US in 2025.3 This is the largest hit rate of outperformance since 2009, underscoring how limiting owning just the US this year has been.
The Gilded Age lasted roughly 30 years, featuring both booms and busts. Today, portfolios heavily concentrated in the gilded-like US equity markets will inherit US equities—and mainly AI hyperscalers’—boom/bust profile.
Having balance—or a guild of diversifying assets—may help portfolios navigate what comes next in this era of concentrated leadership, growth, and the wide range outcomes from innovation.
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