"Buyers’ Fatigue" Threatens U.S. Stock Rally as Fund Flows Weaken

The recent record run in the U.S. stock market appears to be in jeopardy as investors pull back from their earlier bullish positioning, Bloomberg News reported.

 September is historically the worst month for returns in the S&P 500 Index.

Flows into U.S. equity funds have been weak compared with levels earlier in the year, though they have clawed back into positive territory, according to RBC Capital Markets.

Meanwhile, flows from American and European investors into both U.S.- and non-U.S.-domiciled equity funds remain soft, while global flows excluding the U.S. have stayed positive but are showing signs of deterioration.

“When we zoom out, we think this is evidence of buyers’ fatigue,” Lori Calvasina, head of U.S. Equity Strategy Research at RBC Capital Markets, wrote in a note to clients on Monday.

Her concerns focus on elevated equity valuations, weakening bullish sentiment, and seasonal headwinds — with September historically the worst month for returns in the S&P 500 Index.

“Importantly, within U.S. equity funds, retail flows have faltered recently,” Calvasina added. Passive flows from retail investors into U.S. equity funds have now turned negative, reversing prior strength, according to RBC data.