Investors continue to place money into tech stock ETFs, particularly in the US, which has temporarily offset concerns about a trade war.
Analysts have spent more than a year warning about overstretched valuations about large cap US stocks, especially since the election of Donald Trump, which ignited hopes about business-friendly policies and lower taxes.
Yet tech, which makes up more than 26% of the bellwether S&P 500 Index, has continued to trend upwards, despite an increasingly isolationist rhetoric from the White House, rising more than 10% over the past one month alone. Over one year and three years, the same sector has on average gone up 19% and 60% respectively.
Inflows have followed. Totals of $3.8 billion, $5.7 billion and $11.4 billion worth of cumulative ETF flows have flooded into tech over one month, one year and three years.
Over the same periods, US stocks in general within ETFs have seen positive inflows and performance. However, year to date, over one year and three years, the wider S&P 500’s performance has been about half that of its leading sector.
The rally has confounded analysts, with one even telling The Financial Times that it is perhaps an indicator of “how little the market takes the White House seriously on trade policy” as well as acknowledging a continuing risk-on environment.
Tech not deterred by possible trade war
Meanwhile, the threat of a trade war lingers, in contrast with positive economic news in the US like low unemployment and tightening monetary policy. These threats have already affected China, Europe, Mexico and Canada, the latter two of which are crucial partners in the Nafta agreement.
And it is not just Donald Trump who has initiated domestic-oriented polices. Mexico’s peso has recently weakened by almost 2% following its response to US tariffs, imposing its own tariffs on a wide range of US agricultural and steel imports.
Nonetheless, possibly due to progress in the Nafta negotiations, Mexican stocks ETFs have continued to see inflows of just over $1 billion year to date, despite negative returns of around 7% during that period.