Rising anxiety among global investors propelled the swiftest weekly dash into cash since 2013 as money managers dumped bonds and drove the longest sell-off in the benchmark S&P 500 since the financial crisis.
The index has shed 2.9 per cent over the past eight trading days in its longest string of declines since 2008 as the US presidential race between Hillary Clinton and Donald Trump has tightened and fuelled volatility. Money market funds, a proxy for cash, absorbed more than $36bn in the week to November 2, according to fund flows tracked by EPFR.
Selling was concentrated in low-rated corporate credit strategies and US stocks, with the latter seeing $3.5bn of outflows. So-called high-yield bond funds suffered redemptions of $4.1bn over the past week, the biggest withdrawal so far this year. Redemptions from US stock funds have passed $92bn this year.
"Part of what we are seeing is the manifestation of uncertainty playing out in markets," said Jim Sarni, managing principal at Payden & Rygel Investment Management. "The assets people perceive as being the riskiest are seeing people pull back … I look at these near-term outflows and think it is people taking chips off the table to keep powder dry in case opportunities arise following the election."
The scrambling of positioning has pushed the Vix index — a measure of expected equity volatility known as Wall Street's fear gauge — to its highest level since the immediate aftermath of the UK's Brexit vote. Other gauges of skittishness — Bank of America Merrill Lynch's index of implied Treasury volatility and the implied volatility in the euro-dollar currency pair — hit three-and-a-half-month highs on Thursday.
Haven instruments have benefited from the volatility, with US Treasury funds gaining $2.3bn over the past five trading days — the largest inflow since the first week of July. Gold funds received $205m of fresh cash in the past week, a period that saw the metal rise to its highest level in a month.
While the tightening in the US election has sparked short-term concerns, investors have also been troubled by potential threats on the horizon, said Dan Suzuki, an investment strategist at Bank of America Merrill Lynch. "We think there's a lot to be concerned about," he said.
Hopes that members of oil-producing cartel Opec, along with other major crude exporters, will agree to cut output at a meeting scheduled for later this month have cooled. The price of US crude oil, which slid 1.5 per cent on Thursday, has fallen 14 per cent after touching a high of $51.93 in late October.
Other risky assets have also been under pressure in a sign that investors are reducing their bets before the election. The risk premium investors demand to hold the debt of low-rated US companies rose to 5.15 per cent on Thursday, from as low as 4.6 per cent two weeks ago, according to BofA data.
Investors also point to rising inflation expectations pushing up bond yields and the potential for a sharp rise, or "taper tantrum", should central banks begin to rein in accommodative monetary policies.
"Whether it is now or whether it is next year, the taper tantrum risk is likely to resurface," said Mike Swell, co-head of global fixed income portfolio management at Goldman Sachs Asset Management.