ETF Inflows help bull markets but outflows could accelerate downturn

ETFs are useful passive investments in a rising market; dangerous when it turns.

Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) soared from $319 billion to$5,148 billion between 2004 and the end of January 2018.

In a rampant bull market, there were net inflows for 48 consecutive months. Deborah Fuhr, partner of ETFGI, supplied these numbers on the 25th anniversary of the first ETF. The SPDR S&P 500 ETF Trust (SPY US) had $307 billion at the end of January. ( An ETF is linked to an index of individual stocks. It rises and falls in tandem with the index. ETFs cover either entire markets, or sectors).

If markets continue to be volatile and dangerous,  ETFGI  may well report outflows at the end of February.  Hopefully the market consolidates. A further market slide would scare ETF holders. If they sell, managers of ETFs would be forced to dump stocks.  The result would be a rockslide. ETFs and other index trackers could thus bring down all stocks, whether good value or not.

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Even after the  9% slide from the heady peak, US and stock markets are still expensive. The current US PE is 23. The CAPE of 30, is way above its long term PE average.

S&P 500 lengthy bull market. 20 day moving average broken. What now?

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