Apple (AAPL), Ford (F), Northrop Grumman (NOC), Boeing (BA), Wellpoint (WLP), Eli Lilly (LLY), and PepsiCo (PEP) all posted better than expected results last night. In Europe, the Flash Composite PMI reading hit an 18 month high of 50.4% in July. Above 50% suggests Europe may have returned to a growth mode.
Maybe more important than the positive fundamental news is the accelerating flow of capital into the U.S. equity market. Already in July, $27.9 billion has come into U.S. equity ETFs. This is four times greater than the amount deposited in June and the most in five years. The S&P 500 SPDR ETF (SPY) has had inflows of $11 billion this month. It appears the bond collapse in May and June has caused some investors to begin to move money to equities.
The tailwind of positive fund flows is an important new development. Generally since the equity low in March 2009, funds have been flowing out of equities. During this time $1.5 trillion flowed into bond funds. A reversal of this trend could benefit stocks for years. We continue to recommend high relative strength stock exposure in the ETF (PDP) and broad market exposure in the equally weighted S&P 500 ETF (RSP).