Playing Defense
While the S&P 500 remains about 2 percent from its record high, leadership in the market has shifted. Financial and industrial companies that rallied after Trump’s victory have trailed in the past month as investors turned to defensive sectors like consumer staples and dividend-paying shares.
Industries that EPFR categorizes as “bond proxies” -- consumer goods, telecom and utilities -- have attracted inflows for two straight weeks for the first time in three months.
Inflation Questioned
You can’t get reflation without inflation. And whether looking at the latest consumer price index data in the U.S. or flows into inflation-protected bond funds, it’s clear that investors are less worried about accelerating price growth.
U.S. inflation-protected bond funds saw their first outflows of 2017 in the past week, and just the second since August, EPFR data show. Globally, investors have withdrawn money from the asset class in four of the past five weeks.
Inflation in the U.S. unexpectedly fell in March from February, for the first monthly decline since February 2016, according to Labor Department data. What’s more, the core consumer-price index, which excludes volatile food and energy prices, dropped for the first time since 2010.
Munis Rebound
Funds focused on municipal bonds, which are largely exempt from federal income taxes, saw the third-largest inflow ever in the week through April 12. While the $3.8 trillion market usually sees stronger demand around U.S. Tax Day, this year appears to have an added element, Brandt said. Reform could lower income-tax rates and diminish the appeal of munis’ exemption.
Fortunately for states and cities that rely on muni issuance, that doesn’t appear imminent. Treasury Secretary Steven Mnuchin, who had previously said the administration would aim for a tax plan by August, is pushing that timeline to year-end. And some analysts say even that’s too ambitious.
Munis “were under pressure because of all of the initial round of Trump initiatives, tax reform always seemed the most likely to move forward,” Brandt said. “Now the tax angle has been pushed off.”
This article was provided by Bloomberg News.