The exchange-traded-fund sector is delivering a clear message: traders are fatigued, as equities and bonds gyrate in well-defined ranges.
According to data, US ETFs traded $2.1 trillion in shares in April, the lowest monthly amount since August 2020 and almost half of March's activity. The decline corresponds with the Treasury market's quietest month in two years, while the S&P 500 remained rangebound.
The halt comes after a tumultuous start to 2023, which saw at least three US banks fail despite the Federal Reserve's ultra-aggressive drive to combat still-sticky inflation. This clamor came to a halt in April, when weakening economic data and concerns about a credit crisis collided with better-than-expected corporate results. According to Sameer Samana of Wells Fargo Investment Institute, this has primarily kept wary traders on the sidelines or pouring into high-yielding money market funds.
"Some combination of high levels of exhaustion and indifference on the part of investors is exactly the sentiment you expect to see from investors during a bear market," said Samana, the firm's senior global market strategist. "They make you feel as if you're taking all of the risks and receiving none of the rewards."
According to statistics, the S&P 500 rose 1.5% in April, remaining inside its narrowest range since November 2019. While credit-crisis fears have provided plenty of fodder for bears, a strong start to the first-quarter reporting season — which painted a picture of a still-solid US consumer and resilient megacap tech companies — has quieted some of the most vociferous bear calls.
Meanwhile, a persistent decline in the Cboe Volatility Index added to the sense of apathy. After rising above 30 in March following the abrupt failure of Silicon Valley Bank, the VIX fell for six straight weeks to close April at 16, the first level since November 2021.
The bond market was not much more active. Ten-year Treasury yields declined by less than five basis points in April, the lowest monthly change since May 2021. This is a significant shift from the first three months of the year, when 10-year rates fluctuated by more than 30 basis points as investors evaluated the danger of persistent price pressures against concerns that lending requirements would tighten, limiting access to credit.
"It's very difficult to break out of the range," said Alexandra Wilson-Elizondo, co-head of multi-asset portfolio management at Goldman Sachs Asset Management.
The first trading day of May showed little indications of life. The S&P 500 was little changed at the beginning, despite the early Monday surprise that JPMorgan Chase & Co. agreed to purchase failing First Republic Bank in a government-led transaction, bringing the country's second-largest bank failure to an end.
The warring crosscurrents of the future of Fed policy worries about further shoes to drop in the financial sector, and slowing economic growth have produced a type of impasse.
"People are bearish on the economy and stocks for something in the future, but that future isn't coming fast enough to move the market." "We're at a standstill," said Brent Donnelly, president of Spectra Markets. "No reason to deploy new funds, but no ammunition to put on new shorts."
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