According to Dave Nadig, an ETF journalist and financial expert, investors seem to be actively engaged in purchasing activities.
He explained to CNBC’s “ETF Edge” that what is observed is more of a diversification strategy. He noted, “We’re witnessing an influx of funds into various investment options, suggesting that people are aiming for broader market exposure, a wise move during an election year.”
Nadig believes that expanding investment portfolios helps mitigate market volatility in the period leading up to elections.
He mentioned, “Investors are now beginning to invest in areas like value stocks, defensive sectors, and small caps, alongside their existing investments. This suggests that funds are flowing in from the substantial pool of money usually held in money markets.”
Regarding the small-cap sector, Nadig believes it’s premature to determine if the upward trend is sustainable.
He stated, “If small caps consistently outperform large caps over a few months, we may witness a surge of investments chasing such performance, a common occurrence. However, if the current trend is merely a rebalancing act, we can expect stability in the market for the rest of the year.”
The small-cap-centric Russell 2000 index experienced a slight decline of 0.6% on Friday but showed better performance than major indexes such as the Dow Industrial Average, S&P 500, and Nasdaq Composite. For the week, the Russell 2000 managed to gain nearly 2%, bringing its one-month increase to almost 8%. Since President Joe Biden assumed office in January 2021, the index has remained relatively flat.
‘I don’t suspect this big wave coming out of cash’
Anna Paglia, responsible for crafting global ETF strategies at State Street Global Advisors, sees the anticipation of interest rate cuts as a factor fueling strength in underperforming sectors.
She mentioned, “Investors are becoming more accepting of risk, and we expect to see continued momentum.” Paglia, the firm’s chief business officer, added that she doesn’t foresee a significant shift of funds from money market accounts to other assets, as people usually maintain cash reserves for specific purposes.
She elaborated, “Most of these funds are stable. I don’t anticipate a massive movement of investors withdrawing from money market funds to reinvest in the stock market or ETFs.”
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