Trump ignites ETF frenzy, risk asset ETFs attract 16 times the average daily inflow!

Trump's election as the next U.S. president has triggered a surge in U.S. stock ETFs, with investors heavily buying risk asset ETFs. On Wednesday, U.S. stock ETFs recorded a net inflow of approximately $18 billion, nearly 16 times the average daily inflow for 2024.

The related funds are mainly linked to the "Trump trade." Investors are betting that Trump will adopt a more lenient regulatory stance towards industries such as banking and cryptocurrency, while supporting most companies operating in the U.S.

• The Russell 2000 Small-Cap ETF (IWM) recorded a net inflow of $3.9 billion on Wednesday, the largest single-day inflow in over 17 years.
• The SPDR S&P Regional Banking ETF (KRE) saw its largest single-day inflow in history on Wednesday. The State Street Corp. fund tracking financial stocks attracted $1.6 billion, the highest since 2016.
• ETFs tracking high-yield bonds, Bitcoin, and industrial stocks also recorded net inflows.
• Investors also flocked to the ARK Innovation ETF managed by "Cathie Wood," which saw an inflow of $112 million on Wednesday, the highest since July. This fund's top holdings include companies like Tesla and Coinbase.
• On Thursday, although some of the Trump trade cooled down, the S&P 500 index continued to rise, setting a new historical high. This week, ETFs tracking the S&P 500 from Vanguard and BlackRock attracted over $1 billion in funds. On Wednesday, investors poured $4.6 billion into the world's largest ETF—SPDR S&P 500 ETF Trust (SPY), marking the sixth consecutive trading day of inflows for the fund.

While Trump's victory has sparked significant buying in U.S. stocks, bond traders are concerned that his fiscal policies could reignite inflation and increase the national debt, leading to a sell-off in the U.S. Treasury market, although there was a rebound on Thursday.

Industry insiders warn that U.S. stock ETF investors are overlooking the prospect of interest rates potentially remaining high, which could negatively impact some of these trades. While higher yields are beneficial for bank stocks, they pose a challenge for small-cap stocks and speculative tech stocks that are more sensitive to interest rates.

Analysts state that if U.S. Treasury yields continue to rise, it poses risks for all stocks. Currently, the yield on the 10-year U.S. Treasury is 50 basis points higher than the yield on the S&P 500. If this gap continues to widen, it will exert pressure on the stock market