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Investor psychology is shifting to risk in a big way

WASHINGTON (Axios): Money is flooding into U.S. equities, stock mutual funds and ETFs as more traders and investors follow the bullish calls from Wall Street banks and the Fed.

Why it matters: The flows to equities mark a sea change in psychology from recent years when money consistently flowed out of equity funds as investors sought safety in bonds and money market funds even as stock indexes raced to record highs.

By the numbers: U.S. equities generated record inflows last week, according to data from Bank of America, reaching a new high of $56.8 billion and a “staggering record” $68.3 billion into equities overall.

Inflows were more than triple the previous week.

What’s happening: Investors have clearly embraced the concept of TINA (There Is No Alternative [to U.S. equities]) as fund flows have nearly evaporated for government bonds ($0.06 billion), muni bonds ($1.1 billion) mortgages ($0.3 billion) and global emerging market assets ($0.1 billion). Money market funds saw $9.9 billion in outflows, BofA’s data showed.

Flows to those assets were similarly dry the previous week.

The big picture: Equity funds have seen weekly inflows in four of the past five weeks, including $21.5 billion for the week ending March 10 and $31.7 billion for the week ending Feb. 10, according to data from the Investment Company Institute, which tracks around $40 trillion of assets under management.

That flies in the face of recent history — 2019 saw $199.7 billion of equity fund outflows and 2020 saw $394.6 billion of outflows, per ICI’s data.

Details: Prior to November equity funds saw net outflows for 20 straight months.

After November’s brief pause, investors again yanked $33.0 billion out of stock funds in December and $30.7 billion in January, followed by $21.7 billion of outflows for the week ending Feb. 3.

Since then the tide has turned. Selling in U.S. Treasuries over the past month has pushed yields to their highest since January 2020 (prices move inversely to yields) while money has poured into stocks.

In stark contrast to stocks during 2019 and 2020, bond funds saw historic inflows, drawing in $458.5 billion and $445.7 billion for those years, respectively.

The bottom line: Investors were fearful of 2019’s historic bull market and 2020’s irrational run in the face of a pummeled economy.

The newfound exuberance could give the market another leg up, or it could be a contrarian indicator, meaning a selloff is coming.