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What’s happening? SPY sees largest daily inflow in history, while QQQ faces $5.2bn exodus

What's happening? SPY sees largest daily inflow in history, while QQQ faces $5.2bn exodus

The US stock market has witnessed a remarkable surge in the past week, spurred by the Federal Reserve’s announcement of rate cuts in 2024. 

The news has injected a fresh wave of optimism, signaling a long-awaited dovish shift after over a year of policy tightening. Reflecting this sentiment, a prominent exchange-traded fund (ETF) tracking the S&P 500 recorded its largest single-day inflow ever on December 15, totaling $20.8 billion.

In itself, this surge aligns with positive market sentiment. However, on the same day, a major ETF tied to the Nasdaq 100 index experienced $5.2 billion in daily outflows, leaving market participants pondering the contrasting trends and their potential implications. 

What happened?

In the wake of the S&P 500 surging to two-year highs, the SPDR S&P 500 ETF Trust (SPY), the biggest ETF fund tracking the broader market index, attracted $20.8 billion in inflows on Friday. 

This is the largest single-day inflow on record for SPY, The Kobeissi Letter highlighted in its December 19 post. 

Biggest single-day SPY inflow in history. Source: The Kobeissi Letter

“Dating back to the ETF’s inception in 1993, this has never been seen. Total inflows last week alone hit $24 billion, also posting a new record.”

On Monday, December 18, the SPY experienced an additional $10 billion of inflows, taking the total amount to almost $35 billion since a week ago. Put differently, the investors poured $5.8 billion each day into SPY in the six trading days since December 11. 

“The flow that we saw on Friday was 100% organic from clients and investors and traders. It also reflects the massive Santa Claus rally that we have seen in the past few days — so momentum-trading going into SPY as well.”

said Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors.

Nasdaq 100 ETF witnesses biggest outflow in 23 years

Although it’s the highest single-day inflow on record for SPY, it is no great surprise given that the market is currently flooded with optimism. 

Yet, Invesco QQQ Trust Series 1 (QQQ), an ETF that tracks the tech-oriented Nasdaq 100 index, experienced the largest exodus in 23 years. As noted by uINVST CEO Gurgavin Chandhoke, investors pulled out $5.2 billion from QQQ on Friday, the largest single-day outflow since the dot-com bubble in 2000

QQQ biggest single-day outflow since 2000. Source: Gurgavin X account

After that development, the Nasdaq 100 witnessed a 70% decline in the following two years, Chandoke added. 

According to Dave Lutz, head of ETFs at JonesTrading, commented on the exodus: 

“A big indexer may have been rebalancing their books.”

Strategas strategist Todd Sohn said the QQQ outflows likely occurred due to investors taking profits following the massive take-off in stocks in 2023. The tech-focused Nasdaq 100 surged around 55% year-to-date, fueled by substantial gains in mega-cap tech stocks amid the ongoing AI boom. 

Last week, Invesco’s RSP, which offers access to the equally weighted S&P 500 index, attracted $2.1 billion. This may signal that investors are “seeking to further reduce exposure to Magnificent 7-type weights as 2024 begins,” as noted by Sohn, alluding to the leading companies in the technology index.

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