The world’s largest and oldest exchange-traded fund (ETF), State Street’s SPDR S&P 500 ETF (ticker SPY), experienced an unprecedented influx of cash last week as stocks surged to near-record highs, driven by indications from the Federal Reserve suggesting potential interest rate cuts in the coming year. The ETF garnered a record-breaking $20.8 billion on Friday, marking the most substantial one-day inflow since its inception in 1993. The week’s total inflow exceeded $24 billion, setting a new record for the fund, according to Bloomberg data.
The surge in SPY’s inflows coincided with significant market events known to spur heightened trading activity. Matt Bartolini, Head of SPDR Americas Research at State Street Global Advisors, highlighted that Friday was the final trading day before the rebalancings of the S&P 500 and Nasdaq 100 took effect. Such rebalancings prompt fund managers to adjust portfolios to align with new index compositions. Additionally, approximately $5 trillion worth of options expired on the same day, a common occurrence that leads Wall Street managers to either roll over existing positions or initiate new ones.
Bartolini emphasized that the considerable flow observed on Friday was entirely organic, originating from clients, investors, and traders. He attributed the influx to a notable Santa Claus rally in the preceding days, with momentum-driven trading contributing to the heightened interest in SPY.
Notably, trading volumes in SPY on the preceding Thursday and Friday exceeded the one-month average. In contrast, the Invesco QQQ Trust Series 1 (ticker QQQ), tracking the Nasdaq 100, experienced a $5.2 billion outflow on Friday, the most significant single-session outflow since 2000.
Dave Lutz, Head of ETFs at JonesTrading, suggested that a major indexer may have been rebalancing their books, possibly contributing to the outflows from QQQ.
Todd Sohn, ETF strategist at Strategas, linked the outflows to investors capitalizing on profits following the substantial equity rally this year. The Nasdaq 100, driven by gains in mega-cap technology stocks, has witnessed a 53% increase. In contrast, Invesco’s RSP, offering exposure to the equal-weighted S&P 500 index, attracted $2.1 billion last week, indicating investors’ interest in diversifying away from concentrated tech index weights as 2024 begins.
Invesco declined to comment on the developments. The ETF market’s dynamics reflect investors’ response to evolving market conditions, highlighting the significance of major market events and trends in shaping investment strategies.
