The second largest capital net inflow since 2008! Investors All In on US stocks

Since Trump's victory, funds have been pouring into U.S. stocks, and the "animal spirits" remain active.

On Monday, media reports citing EPFR data indicated that in the week ending last Wednesday, U.S. stock ETFs and mutual funds attracted nearly $56 billion, marking the second-largest weekly inflow since 2008. These funds have seen inflows for seven consecutive months, the longest duration since 2021.

As investors bet heavily on Trump 2.0, the U.S. market capitalization has soared by $1.8 trillion since Election Day. The U.S. dollar (real effective exchange rate) is currently at its highest level in 55 years, and the ratio of the U.S. stock market to the global stock market is at its highest level in 75 years.

Investor sentiment is also relatively optimistic, with a survey by the American Association of Individual Investors showing that the proportion of optimistic investors jumped to 49.8% last week, while the proportion of neutral investors fell to its lowest level since 2022. About 40% of respondents indicated that the U.S. election made them more optimistic about the market.

Among them, a large number of investors are flocking to small-cap stocks, with the Russell 2000 index rising nearly 2% since the U.S. election. One of the largest exchange-traded funds linked to this index attracted $3.9 billion in a single trading day this month, the highest level since June 2007. Meanwhile, fund managers have also increased their bullish positions, pushing net bullish bets in the futures market to the highest level in over four years.

High-risk sectors are also thriving, with three of the five largest trading days for call options since 1973 occurring this month. This has driven up the cost of call trades, which will profit if the stock market surges. Data from the U.S. over-the-counter market shows that trading volume in November for the OTC market (including high-risk securities like penny stocks) surged 27% compared to the same period last year.

As of last Friday's close, the S&P 500 index and the Nasdaq Composite index were both only about 3.2% below their historical highs. With just a few weeks left until the end of 2024, the S&P 500 index is expected to rise over 20% this year, achieving such a significant increase for the second consecutive year. Deutsche Bank stated that this is only the third occurrence of consecutive increases in the past century.

However, some analysts have warned that some market observers caution that investors may be too quick to latch onto policies that could boost the market while overlooking plans that could trigger inflation and market volatility.

Some warn that after the recent sharp rise, stocks appear expensive. The price-to-earnings ratio of the S&P 500 index is 22 times, higher than its five-year average of about 20 times. Bank of America strategist Savita Subramanian stated in a report to clients:

Market sentiment and positioning are "dangerously bullish."