tl;dr
RBC Capital Markets warns that the US stock market's strong performance may be showing signs of fatigue, citing slowing inflows into equities and concerns about the sustainability of the rally. Investment flows into US equity funds are easing, with retail investor inflows stalling and passive inve...
The US stock market’s record-breaking rally may be showing signs of fatigue, according to a cautionary note from RBC Capital Markets. The global investment bank’s analysts are flagging a slowdown in inflows into equities, sparking questions about whether the market’s meteoric rise can hold its ground.
RBC’s report, highlighted by Bloomberg, points to a troubling trend: investment flows into US equity funds are easing, even as they remain positive. While the broader market has surged—taking the S&P 500 from around 5,000 points in early April to a recent close of 6,532—the momentum behind the rally appears to be waning.
“Buyers’ fatigue is evident,” says Lori Calvasina, head of US Equity Strategy Research at RBC. She notes that retail investors, a key driver of recent gains, have seen their flows stall. Worse still, passive investments from retail investors into US equity funds have turned negative, a stark contrast to the robust inflows earlier this year.
The warning isn’t just about money moving out. RBC highlights a cocktail of factors that could spell trouble: sky-high valuations, a drop in investor optimism, and the seasonal doldrums that often plague the S&P 500 in September. Historically, the index has delivered its weakest returns in the final month of the summer, a pattern that could reassert itself as the market grapples with these headwinds.
Meanwhile, global flows into equity funds—excluding the US—are trending downward, while flows from American and European investors into both US- and non-US domiciled funds are softening. This suggests a broader loss of appetite for risk, even as the US market continues to outperform.
So, what does this mean for investors? The warning from RBC isn’t a panic button—it’s a reminder that even the most relentless bull runs can face friction. As the market navigates elevated valuations and shifting sentiment, the question isn’t whether the rally is over, but whether it’s time to prepare for a more measured climb.
What do you think? Are we witnessing the end of a historic run, or just a pause for breath?