Stocks have two big tailwinds pushing them higher
Trader on NYSE May 3, 2021.
It’s no longer just about profits: dividends and huge inflows are helping stocks fuel their powers.
April trading data is in and shows two surprises: a surge in dividends and huge inflows into stocks even stronger than in the first three months of the year.
Dividends are back
Last April, two dozen S&P 500 companies cut or suspended their dividends. More suspensions and dividends came later in the year.
The opposite happened in April of this year: 33 S&P 500 companies announced dividend increases. None announced a decline and none suspended dividends.
In particular, 11 companies that had suspended dividends in 2020 paid again in April:
Reinstatement of dividends
Universal health services
McMoran Free Port
Three of them – TJX, HCA Healthcare, and Freeport McMoran – are paying higher dividends than they were before payments were suspended.
“The bottom line is that a year ago companies had no idea what was going on,” said Howard Silverblatt, senior index analyst at S&P Global Indices. “Now there is much better clarity and you are ready to put your money where your mouth is.”
Will it go on? Silverblatt estimates the dividend payout for the S&P 500 will increase 5% in 2021.
That would mean a payout to investors of around $ 515 billion, up from $ 483 billion in 2020.
“There’s money in my pocket,” said Silverblatt. “Remember, when a company pays a dividend, it is expected to keep that dividend going. It is a company obligation, and you don’t make that decision lightly.”
Investors enthusiastic: The large inflows into ETFs continue
Almost record-breaking inflows into ESG, thematic technologies and other areas are also propping up prices.
Exchange-traded funds started the year with just under $ 6 trillion in assets under management, and inflows continued steadily every month through 2021.
In April, an additional $ 55 billion was invested in equity ETFs for a total of $ 258 billion in capital inflows. There will certainly be much higher equity inflows in 2021 than in 2020, when panicked investors poured money into pension funds.
“The money comes from all over the place,” said Harry Whitton, senior vice president at Old Mission, an ETF market maker. “There are still people at home who are putting money into the markets. They are seeing a lot of interest in [Environmental, Social and Governance] ETFs. You continue to see money flowing out of mutual funds as well as into ETFs. “
Is the Reddit crowd turning into long-term investors?
Those inflows came despite a 30% decrease in stock trading volume in April compared to March and a similar decrease in stock options trading of 14%.
Why are there large inflows into ETF stock funds and less overall trading in stocks and stock options?
Nikolaos Panigirtzoglou, managing director of JPMorgan Chase, suggests that retailers change their trading patterns: “The behavior of US retail investors seems to be changing again, away from buying individual stocks or stock options and towards buying more traditional equity funds, as has been the case the pandemic, “he wrote in a recent statement to customers.
Harry Whitton agrees, “We’re seeing fixed income ETFs selling and stock ETFs buying. Maybe some of the Reddit folks turned into long-term investors. Or they got their tax bills.”
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