NEW YORK Investors in funds worldwide poured $11 billion into U.S. stock funds in the latest week, the most since September 2011, as the Dow Jones industrial average .DJI flirted with the psychologically important 14,000 level, data from EPFR Global showed on Friday.
Both mutual funds and exchange-traded funds that hold U.S. stocks recorded strong inflows in the week ended January 30. U.S. stock ETFs attracted $9.6 billion of the inflows, while U.S. stock mutual funds raked in $1.4 billion, the fund-tracking firm said. The inflows accounted for much of the $18.76 billion that flowed into stock funds worldwide.
The solid demand for stock funds last month was a sharp contrast from 2012. Investors have given $53.8 billion to stock funds worldwide in the past four weeks after having pulled $69.1 billion from the funds last year.
Sentiment toward stocks has improved dramatically on signs of an upswing in the U.S. economy. Solid corporate earnings from bellwether companies such as Procter & Gamble (PG.N) and Honeywell International (HON.N) and encouraging labor-market and factory data lifted market confidence. In addition, investors were relieved after U.S. lawmakers delayed talks on raising the debt ceiling until May.
What's more, stocks are also more attractive as an alternative to middling yields on corporate and government bonds, and the inflows to stock funds could signal a rotation out of bonds.
"Clearly, equities have been on the rise," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. He noted, however, that inflows to stock funds could also be nearing a top if investors turn more bearish.
The spike in demand for U.S. stock funds in the latest week marks a reversal from the previous week, when investors pulled $1.28 billion from the funds. Those outflows were, however, a result of institutional investors redeeming money from U.S. stock ETFs, while retail investors gave $340 million to U.S. stock mutual funds, EPFR Global said.
The huge inflows to funds that hold U.S. stocks exceed the funds' cash gains of $10.35 billion in the first full week of January, and also mark the fourth straight week of cash contributions from individual investors.
Emerging market stock funds pulled in $3.59 billion in new money, down modestly from the prior week's inflows. European stock funds made a small comeback with gains of $1.19 billion, compared with inflows of $573 million the previous week.
The big inflows into stock funds dwarfed demand for bond funds worldwide, which gained $3.02 billion, down modestly from inflows of $3.71 billion the prior week. Funds that hold U.S. bonds pulled in $1.73 billion, just slightly greater than the prior week's gains.
"It's the right direction for long-term investors to be going into stocks from bonds," said Richard Sichel, who oversees $1.5 billion as chief investment officer of Philadelphia Trust Co. "U.S. companies are stronger than ever, financially," he added.
The benchmark S&P 500 .SPX rose just 0.5 percent over the reporting period. On Friday, the Dow traded above 14,000 for the first time since October 2007 and both indices were up about 1 percent.
Central banks also issued influential statements over the week. The European Central Bank said banks would repay 137 billion euros from crisis loans, returning more cash earlier than expected and improving sentiment.
In the United States, the Federal Reserve kept in place its purchases of $85 billion in Treasuries and agency mortgage securities on Wednesday.
The yield on the benchmark 10-year Treasury breached 2 percent in intraday trading on Friday after payrolls data showed that employers created 127,000 more jobs in November and December than previously reported.
Funds that hold emerging market bonds pulled in $1.53 billion in new cash, which was largely unchanged from the prior week. Investors soured further toward European bond funds and redeemed $1.01 billion, showing greater avoidance after the prior week's outflows of just $53 million.
(Reporting by Sam Forgione; Editing by James Dalgleish and Dan Grebler)