US Retail Investor Trends, Post-FOMC Fed Funds Odds

By in
US Retail Investor Trends, Post-FOMC Fed Funds Odds

Three “Data” Items today:

#1: Americans’ interest in investing is starting to pick up again. We’ve chronicled the ebbs and flows here over the last 18 months, most commonly by looking at domestic Google Trends search volume data for “invest” and “buy stock”.

Here is the latest version of that chart, where last week’s search volumes for these terms were +40 – 90 percent from mid-September. We are nowhere near the peak set at the start of the year, but the trend is definitely to the upside. Our assumption is that users google these terms when they are just starting to consider investing, so this is a proxy for “new new” money coming into capital markets.

Now, to give you a sense of how interest in traditional investing stacks up against virtual currencies, here is the same Google Trend chart but with “B” (the largest virtual currency whose name we can’t use due to spam filters) and “Ethereum” added to the mix. The volume of US searches for “B” far exceed either the next most popular virtual currency or queries we associate with more traditional investments. The gap was widest at the start of 2021, but remains impressively large even today.

Shifting back to old-school investment options, the latest Investment Company Institute mutual/exchange traded money flow data confirms that US retail investors are warming up to risk assets:

  • For the week ending October 27th, fund investors bought $9.9 billion of US equity funds. This was the second straight week of solid inflows, with last week at $9.4 bn. The prior 4-week average is essentially zero ($68 million/week) so the last 2 weeks are notable, especially considering that they are coming at new highs for US large caps.
  • Inflows into non-US equity funds was also strong last week at $7.4 bn. This is more than double the prior 4-week average of $3.5 bn.
  • Fund investors continue to be ambivalent (at best) towards fixed income products. Last week’s inflows were modest ($7.2 bn) as compared to the weekly average for all of 2021 ($14.4 bn) even if they were slightly better than the 4-week average ($5.5 bn).

Takeaway: we’ve been cautious on the idea that Americans would remain as interested in investing as they have been over the last 18 months, but the recent rally seems to be holding their attention. That’s clearly helpful for stock prices. Correlations between fund money flows and the S&P 500 have been solidly positive, as we noted last week. It’s been a long time (years) since mutual/ETF fund equity inflows were reliably positive. If you’re looking for another reason to believe in a year-end melt up up for US stocks, this certainly qualifies.

#2: US office occupancy, as measured by Kastle Systems’ “Back to Work Barometer”, actually declined slightly for the most recent measurement week (ending last Wednesday). By their estimate, which is based on security card swipes, occupancy fell by 0.1 percentage points to 36.8 percent. Here is the running 4-week average data (left) and the city-level detail (right):

The drop in NYC occupancy is disappointing both in magnitude (1.7 points) and because unemployment here remains so high (9.8 percent). The drop in Chicago occupancy (0.6 points) is also troublesome, as joblessness is also higher here than the national level (6.1 pct vs. 4.8 pct).

Takeaway: while today’s ADP payrolls number of 571,000 jobs added in September was heartening, the sluggish growth in urban office occupancy makes us less optimistic that this Friday’s Jobs Report will beat expectations of 450,000 jobs added. Urban unemployment remains a problem across America’s largest cities. One key driver is lower levels of weekday population density, which limits job growth in the ancillary services that revolve around office workers. We hope we’re wrong on this point, but recent disappointing jobs report correlate with still-low levels of office occupancy.

#3: Fed Funds Futures barely twitched today, a sign that the Fed has done a good job conditioning markets for rate hikes next year (data from CME FedWatch, 5pm East Coast prices, link below):

  • June 2022 is still the month where odds of a rate hike are closest to 50:50 (65 percent odds today, 62 percent yesterday).
  • September 2022 remains the month where rates will almost certainly be higher than today (83 percent odds today, 82 pct yesterday).
  • December 2022 odds for Fed Funds being 50 basis points higher (implying 2 hikes) than today are 34 percent today versus 33 percent yesterday. This remains the modal (most likely) outcome.

Takeaway: US equity markets rallied today after the FOMC announcement and Chair Powell press conference because they got exactly what they were expecting in terms of tapering guidance and general policy discussion. Not that Chair Powell’s probability of renomination is necessarily tied to the stock market, but PredictIt’s odds for his seeing another term have come back today: 75 percent as we write this note versus 69 percent yesterday.

Sources:

Investment Company Institute fund flows: https://www.ici.org/research/stats/weekly-combined

Kastle Systems data: https://www.kastle.com/safety-wellness/getting-america-back-to-work/

CME FedWatch: https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html