This episode explores the defensive strategies employed by investors amidst heightened macroeconomic uncertainty. Against the backdrop of recent market volatility, the typical pattern of shifting funds from stocks to bonds as a defensive measure proved uninformative. More significantly, the significant inflow of nearly $5 billion into gold ETFs within a week, alongside over $100 billion flowing into money market funds year-to-date, highlighted a flight-to-quality trend. For instance, three of the ten highest net inflow days into gold ETFs over the past twenty years occurred in the last month alone. However, surprisingly, there were also outflows from high-grade U.S. fixed income, the largest since the pandemic, raising questions about the future of American exceptionalism and potential shifts in global investment strategies. Despite this, data suggests no significant rotation out of U.S. risk assets into international markets. The episode concludes by advising investors to maintain a defensive posture, acknowledging the evolving perception of risk itself as a risk factor.
