It was a good week for the U.S. stock market — at least compared to recent weeks. Even after the "soft" Friday jobs report, the market kept grinding higher, especially big growth stocks, which in the past week saw their biggest inflow in the past four months, according to Bank of America Merrill Lynch data.
Talk of the beleaguered Trump Trade has even been replaced by talk, among some, of a Trump Trade restart.
The Dow Jones Industrial Average saw its first record close since March 1 on Thursday, according to CNBC data. The Dow, , NASDAQ, and NASDAQ-100 all closed at record highs on Friday. The small-cap stock Russell 2000 index saw its best daily performance in two months this week.
Financials were the best-performing sector on Thursday, with the Financial Select Sector SPDR (XLF) turning in its best day in more than a month.
... Before turning in a great day on Thursday, financial had given up all their gains for the year as of Wednesday.
And the millionaire investor confidence survey conducted by Spectrem Group showed its biggest ever month-over-month drop in May as 39 percent of America's affluent said they will avoid investing in the next month.
Before investors take their finger off the Trump Trade pause button, it's worth taking a look at the biggest trading moves made by investors in May, based on ETF flows data from XTF.com and FactSet. The "animal spirits" argument for the U.S. economy isn't in full force, but there's also a risk that the "animal spirits" that moved from the S&P 500 to overseas stocks are just the latest performance-chasing.
While it's an established trend to see international and emerging markets ETFs near the top in flows for equity funds this year, they were the top two ETFs in May, with iShares MSCI EAFE Index ETF (EFA) — roughly $4 billion in May flows — and the iShares Core Emerging Markets ETF (IEMG) — roughly $2 billion in May flows — No. 1 and No. 2 , respectively.
"European economic growth is gaining momentum and political risks have receded. Hopes of reforms and faster economic growth in emerging markets have improved their outlook significantly," said Neena Mishra, director of ETF research at Zacks Investment Research.
What's notable is the trend becoming more popular through more targeted bets, said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.
The No. 6 and No. 7 ETFs for new flows in May were the Vanguard FTSE Europe ETF (VGK) and iShares MSCI Eurozone ETF (EZU). "The more targeted bets is a sign of confidence," Rosenbluth said. And there was a ripple effect from the Macron win in France.
International equity is now ahead of U.S. equity in total ETF flows year-to-date — $75 billion versus $68.5 billion, according to FactSet.
In May, U.S. equity ETFs had net flows of $1.5 billion, versus $23 billion for international equity.
"It has as much to do with investors seeking diversification as the U.S. market being near or at record levels," Rosenbluth said. U.S. investors tend to maintain far greater exposure to the U.S. stock market than international equities.
International fixed-income ETFs had greater new flows from investors in May than U.S. equities, at $2.25 billion, according to FactSet.
Emerging markets debt was the story, again — it was the 18th straight week of inflows to emerging market debt, according to Bank of America Merrill Lynch data covering the broader universe of fund managers.
The iShares JPMorgan Emerging Markets Bond ETF (EMB) took in $824 million, topped only by two core U.S. bond ETFs in flows for the month.
Marc Faber, author of the "Gloom, Boom & Doom Report" — or Dr. Doom as he is known to market junkies — told CNBC this week that overseas markets have "way outperformed the U.S." this year, and he believes it will continue. He is favoring European and EM corporate bonds and Treasuries.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) was No. 2 overall in flows among all ETFs for May, not just bond ETFs, at $2.2 billion, after the iShares MSCI EAFE.
U.S. fixed income ETFs had net flows five times the size of U.S. equity flows in May.
On Friday, after the soft jobs report, CNBC's Jim Cramer said the bond market had been signalling this employment outcome. Yield on the 10-year Treasury hits its 2017 low on Friday.
One of the biggest high-yield bond ETFs was one of the biggest losers among all ETFs in May. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw outflows of near $1.4 billion, shifting its year-to-date flows from being positive to negative overall.
Mishra said the real surprise was that junk bonds, usually highly correlated with oil prices, continued to rally and attract inflows even as the energy sector was the worst performer.
"Inflows out of junk bonds and into investment grade bonds suggest that investors are reducing the U.S. credit risk in their portfolios," Mishra said.
Among the Sectors SPDRs —the best market proxy for sector rotation strategies — Consumer Staples (XLP), Consumer Discretionary (XLY), Utilities (XLU), and Industrials (XLI) all saw fresh all-time highs this week, with the Health Care SPDR (XLV) hitting its highest level since 2015. Even the Retail SPDR (XRT) had its best day of 2017.
But in May, instead of a mix of winning and losing sectors, it was a month of little interest in U.S. stock sector bets. Only Consumer Discretionary took in any notable flows — $258 million. The Financial Select Sector SPDR (XLF) saw outflows of $761 million; followed by Technology (XLK), with outflows of $526 million; Consumer Staples, with outflows of $283 million; and Utilities (XLU), with outflows of $249 million.
"It's notable that only XLY [Consumer Discretionary] of the 10 sectors saw [real] inflows. Investors are not using these products as tactically as they have historically," Rosenbluth said. "There's usually net inflows to a handful of sectors, a rotation, and it appears as if investors are going more diversified with their approach in U.S. equities."
Some of XLY's top holdings have done well in the past month after better-than-expected earnings. It has more than a 15 percent allocation to Amazon, up more than 6 percent, along with some other top portfolio stocks — Comcast (6.5 percent), McDonald's (8.8 percent) and Starbucks (6.5 percent).
Mishra said the ongoing political drama in Washington may lead investors to favor larger companies with higher overseas revenue exposure, and these companies have been significantly outperforming smaller, domestically focused companies this year.
"Investors have just been cautious about U.S. stocks. ... Investors are just waiting for a new catalyst," Mishra said.
More from Trading the World:
The investing decision where it's OK to disagree with Buffett
An overlooked way to out-Vanguard the index giant on investing costs
Why investing based on a nation's wealth makes sense