Technology ETFs experienced a net outflow of nearly 9 billion dollars in a single month, indicating a more pronounced rotation of capital within the US stock market.

Earlier, I mentioned that funds in the US technology sector had seen inflows exceeding 20 billion dollars within a week, only to quickly shift to a net outflow of 15 billion dollars. Data from Goldman Sachs Prime Book also showed that hedge funds' selling of US information technology stocks reached an extreme level not seen since 2016.

In the latest month, technology sector ETFs saw net outflows close to 9 billion dollars, far outpacing other industries. The financial sector gained around 2 billion dollars in net inflows, while healthcare, utilities, industrials, and consumer staples also saw modest capital inflows.

This indicates that the technology and AI trades, which have been the most concentrated in funds, the highest in valuation, and the largest in gains over the past few years, are now experiencing systematic reduction in positions. The withdrawn funds are flowing towards sectors like finance, healthcare, utilities, and industrials, which have relatively lower valuations, more stable cash flows, and smaller previous gains.

However, despite the financial sector receiving the most funds, it still remains far below the nearly 9 billion dollars outflow from the technology sector. The inflows from other industries combined do not fully absorb the capital withdrawn from the technology sector. A significant portion of the funds may also be shifting into cash, bonds, or other assets, indicating a decline in overall market risk appetite.

Interestingly, it has recently become evident that some funds have flowed into Bitcoin.

This can be linked to the earlier data from institutions, hedge funds, and retail investors. Institutions are reducing their exposure to tech stocks, while retail investors' net purchases have dropped to around 13 billion dollars over the past month, the lowest level since 2020. Meanwhile, the total trading volume of retail investors remains close to 500 billion dollars, with each 100 dollars in trading resulting in only about 2.6 dollars of net buying, indicating continued trading activity, yet the actual incremental funds remaining are decreasing.

The biggest risk is that technology stocks hold a disproportionately high weight in the S&P 500 and Nasdaq. If more funds continue to withdraw from tech stocks, the S&P 500 and Nasdaq are likely to experience pullbacks as well.

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