Much of the equity market (US and Intl) gains have come through ETF inflows. Especially true for 2017; This has been a significant contributor to our current high market P/Es.
This has lead to some speculative articles you may have seen recently that warn of ETF bubble bursting and creating a dramatic market correction.
As equity buying has cycled back into positive territory in 2017, we are approaching a cross over with 5 year rolling average. Outside of geo-political macros, this should continue it's momentum through the cross-over
(this is a measure of investor sentiment and momentum- fairly accurate in it's predictive).
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At some point the market will correct (economic cycle, high P/E corrective, recession, etc.). Along with Yield curve direction, we were at a critical period in early 2017- whether we would cycle back or continue down in a major correction. That's generally when I started putting out Yellow caution- then advanced to Orange hard watch alerts. When we turned the corner on this and some other data- I was able to reduce back to Yellow watch- we are still in a awkward position on some other fronts- so maintaining Yellow for next months as Fed enters the picture
But I wanted to share this data in case some of you have been reading about ETF bubble dangers effecting markets:
Some of the ETF money-flow is coming at the expense of Mutual Funds and largely in non-US stocks:
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The most important question though:
Net how do the inflows establish against historical norms for 'bubble bursting'?
Bubbles are formed and corrected all the time, but major ones can catapult the entire market into more than just corrective- leading to recession etc. TSLA will clearly not escape such an event, even if undamaged long term.
Known major corrective bursting of bubbles form and burst with 1000% gains over 10 years.
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Hence- ETFs are NOT a current inducer of market bubble bursting.
geo-political macro conditions may cause corrections at any time and are currently in high risk territory and
There are a number financial macro conditions today showing signs of caution (Yield curve - Fed rates - high P/Es and more)
ETF Bubble-Burst is NOT one of them
kl