“Getting your bell rung” usually refers to when a football player gets hit so hard, they lose consciousness or become dizzy—the first sign of a concussion.
Concussions, much like today’s market, are also hard to predict,1 and after the onslaught of trade-related Twitter blitzes, where new tariffs were on-then-off- again in just a matter of days, the market’s price reaction was dizzying. There were 11 days in August where the S&P 500® Index either rose or fell by more than 1%. If fundamentals are the market’s padding within its helmet to protect against geopolitically fueled volatility strikes, it might as well be one of those leather helmets from the 1940s.
Accommodative monetary policies address the symptom, not the root cause but much like preventing concussions in football, the reality of reduced geopolitical uncertainty in today’s market is a long way away.
For investors, therefore, a more defensive-oriented ground-and-pound approach might offer the best bet moving forward in an unpredictable environment.
Stocks’ frequent trips to the concussion protocol blue tent2 have left ETF fund flows well off their pace from last year. The $148 billion amassed through August is 13% off last year’s figure at this time. Luckily, fixed income ETFs have been the Nick Foles to equity flows Carson Wentz,3 as they have carried the load while equity flows have been hurt.
Fixed income ETFs are more than 50% above their pace from last year: inflows of $14 billion in August mark the 49th month out of the last 50 that bond ETFs have had positive flows.
Like fixed income, flows into gold-backed ETFs are robust. Notional figures do tell a strong story, but going one level deeper reveals an even more positive trend.
Using our continuous flow momentum process (more on this in the sector section), gold-backed ETFs have consistent demand on par with Brexit and the Q4 2018 drawdown time periods. So not only do gold-backed ETFs have large net demand (i.e. notional flow totals), but also are exuding a consistent, and persistent, demand trend.
Over the last trailing month, gold-backed ETFs saw inflows nearly 80% of the days. At 77%, this is only 6% off the Brexit all-time high of 83%. Given geopolitical tensions and negative yielding debt, gold-backed ETF demand should continue.