A Record Amount of ETF Flows Have Been Seen After the U.s. Election, Shattering Previous Records

In the latest ETF Wrap, we dive into the unprecedented capital inflows that State Street Global Advisors experienced from investors pouring money into U.S.-listed exchange-traded funds (ETFs) right after the presidential election results came in.

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The day after Donald Trump won the race to become the 47th president of the U.S., investors eagerly sought U.S. stock market exposure. This “monumental” surge saw about $22 billion flow into U.S.-listed ETFs on Wednesday, according to Matthew Bartolini, head of Americas ETF research at State Street Global Advisors. This inflow shattered previous records, easily surpassing the prior post-election record of $4 billion, which occurred in 2020 after Joe Biden’s victory.

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Bartolini described this influx as a “risk-on” approach, noting it was as if “the market just got a bunch of candy and took off.” Investors concentrated heavily on U.S. equity ETFs, channeling around $17 billion into these funds while withdrawing capital from international equity ETFs. Within the U.S. equity sector, about $14 billion targeted exposures across large-cap and small-cap stocks, as well as growth and value investing styles. The SPDR S&P 500 ETF Trust (SPY), which follows the U.S. large-cap stock index, emerged as a top choice, drawing in over $4 billion in investments on Wednesday.

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Sector-specific U.S. equity ETFs also saw impressive inflows, totaling over $3 billion. Financials and industrials led this charge, with Bartolini observing that these cyclical sectors stood to benefit the most from anticipated economic growth. In contrast, defensive sectors such as utilities, consumer staples, and healthcare experienced outflows on Wednesday, indicating a shift toward sectors that may gain from a favorable economic environment.

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Among the biggest winners was the Financial Select Sector SPDR Fund (XLF), providing exposure to the financial sector within the S&P 500, which pulled in approximately $1.6 billion. Additionally, investors funneled around $1.3 billion into the SPDR S&P Regional Banking ETF (KRE), which saw a one-day influx equivalent to roughly one-third of its total assets under management as of the previous day. Shares of the Regional Banking ETF, which tracks a bank-focused index, soared by 13.4% on Wednesday, according to FactSet data.

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According to Bartolini, Trump’s administration is likely to bring reduced regulations to the heavily monitored banking industry, potentially enhancing balance sheets and returns on equity for banks. Furthermore, Trump’s expected inflation-boosting policies could create a steeper yield curve, favoring banks’ net interest margins. This adds to the momentum in the banking sector, which recently reported strong earnings results.

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The appetite for risk wasn’t limited to equities. Investors also directed $4 billion toward bond ETFs on the day following the election. Specifically, high-yield corporate-bond ETFs and funds focusing on leveraged loans each attracted around $700 million. These bond types represent higher-risk corporate debt, suggesting that investors were willing to take on additional credit risk.

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Investors also allocated about $1.8 billion to government-bond ETFs, most of which were directed at long-term bonds with maturities of 10 years or more. Bartolini noted that this interest in long-duration bonds could signal that investors saw an opportunity to buy following a yield rally, which had temporarily lowered bond prices. Alternatively, it might indicate a shorting strategy, with some investors betting on a decline in the prices of long-term Treasurys.

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On Thursday, Treasury yields dropped following the Federal Reserve’s announcement of a 25-basis-point rate cut, bringing the policy rate down to a range of 4.5% to 4.75%. This decision came in light of the steady pace of U.S. economic activity and gradual progress toward the Fed’s 2% inflation goal. The 10-year Treasury yield fell by 8.4 basis points to 4.341%, while the 2-year Treasury rate dropped 5 basis points to 4.217%, according to Dow Jones Market Data.

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The U.S. stock market mostly ended higher on Thursday, with the S&P 500 gaining 0.7%, the Nasdaq Composite rallying 1.5%, and the Dow Jones Industrial Average finishing near flat. These gains followed significant jumps across all three major indices on Wednesday, as markets responded positively to the election results.

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Bob Elliott, CEO and CIO of Unlimited Funds, described the combination of Fed rate cuts and anticipated pro-growth policies from the next administration as creating the “perfect recipe for a no-landing scenario” for the U.S. economy. Under such conditions, Elliott explained, the economy would continue expanding even as inflation remains above the Fed’s target.

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Elliott also speculated that Trump’s expected policies could include tax cuts, deregulation, and higher deficit spending, all of which could stimulate growth. This perspective aligns with the market’s post-election response, though Elliott pointed out that both stocks and, to some extent, bonds seemed to overlook potential inflationary pressures from likely increased tariffs under Trump. Elliott suggested that investors might view these tariffs as “campaign rhetoric rather than realistic policy.”

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This week’s ETF Wrap also includes insights on the top-performing and bottom-performing ETFs over the past week, based on data.

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The strong inflows into U.S.-focused ETFs and bond funds after the election underscore investor optimism around the anticipated economic and market benefits of the new administration’s policies, despite inflationary concerns. With significant capital flowing into sectors poised to benefit from growth, such as financials and industrials, as well as high-yield bonds, the post-election landscape reflects a clear shift towards risk-oriented strategies and pro-growth assets.

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