The Post-Election Flood Into ETFs

ETFs pulled in more than $22 billion in a single day following the election – bringing last week’s grand flow total to almost $65 billion – and putting ETFs well on pace to top $1 trillion in 2024. Markets are pricing in a likely clean Republican sweep at this point. Many on Wall Street take this to mean extended tax cuts, aggressive tariffs and looser financial regulation.

Regardless of their political preferences, markets applauded the resolution of any potential election uncertainty by charging full steam ahead into broad-based equity ETFs. Investors were defensively positioned ahead of November 5 and are now playing a fast and furious game of catchup. With economic data continuing to surprise to the upside and a much stronger-than-expected Q3 earnings season, investors are looking to re-up their exposure to the market in a big way. In tandem with the record-breaking rally, money flooded into major index-based baskets, including the Vanguard S&P 500 ETF (VOO A), the iShares Core S&P 500 ETF (IVV A) and the SPDR Dow Jones Industrial Average ETF (DIA B). The biggest winner on the week was the SPDR S&P 500 ETF Trust (SPY), which boasted $12.6 billion in net inflows.

Financials led the charge among sectors in the wake of the results. Bank ETFs had already staged a powerful comeback after the Federal Reserve’s first rate cut in September. Now rates coming under pressure, easing regulatory attitudes, and potential tax cuts have bolstered confidence in the banking sector. The U.S. economy also appears to be on firm footing – which typically translates to healthier deal flow and potential increased M&A and IPO activity heading into 2025. Both the SPDR S&P Regional Banking ETF (KRE A-) and the Financial Select Sector SPDR ETF (XLF A) were among last week’s most popular trades. In fact, KRE raked in more than $1.3 billion in new money the day after the election. This accounts for 36% of the fund’s total current assets. Potential tariffs and tax cuts could prove inflationary, even while the Federal Reserve is working hard to trim rates. This could translate to higher net interest margins – another boon for banks.

In the months leading up to the election, small- and mid-caps had seen more subdued flows. But right after the results poured in, small-cap ETFs enjoyed $4 billion in inflows and pushed the iShares Russell 2000 ETF (IWM A-) into positive territory again for both the month and the quarter. Many anticipate Trump’s proposed tax cuts and protectionist-leaning policies will benefit smaller, domestically focused companies over those who do more business globally. Anticipated lower borrowing costs from Fed policy are an added benefit.

On a total return basis, 12 of the 13 best-performing ETFs last week were all linked to the crypto ecosystem. Bitcoin ETFs had already seen a barrage of interest in the days leading up to the election. It then got a huge boost on the heels of Trump’s victory – topping $90,000 for the first time ever. For much of this year, bitcoin has behaved like a higher-beta version of the overall stock market. Congress pushed through a bipartisan crypto bill back in July. Several proponents from both sides of the aisle have voiced support for building a strategic bitcoin reserve. And with mounting geopolitical tensions, some are also looking to bitcoin as a possible hedge against uncertainty abroad.

To that end, the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT A), the CoinShares Valkyrie Bitcoin Miners ETF (WGMI A-) and CoinShares Valkyrie Bitcoin and Ether Strategy ETF (BTF A-) all rallied 30-40% each. On the flows front, the iShares Bitcoin Trust ETF (IBIT ) alone has hauled in more than $1 billion over the past week and is now even bigger than BlackRock’s own gold ETF, the iShares Gold Trust (IAU B-).

Tesla shares have rocketed higher by 39% since last Tuesday. Tesla CEO Elon Musk held a pivotal role in Trump’s presidential campaign. Many are betting Musk may have a powerful role in the new administration come 2025. Some also anticipate Trump will invest in the space race against China, which would benefit Musk’s company, SpaceX. The Direxion Daily TSLA Bull 2X Shares (TSLL A-) has surged nearly 80% since November 5. That’s also sparked a 16% rally in shares of Cathie Wood’s ARK Innovation ETF (ARKK B), which counts Tesla as its top holding with a 14% weighting.

Trump’s victory swiftly took the wind out of the sails of major China ETFs, like the iShares China Large-Cap ETF, which had ridden a wave of optimism over China’s new stimulus measures. Trump has already threatened steep tariffs of at least 60% on Chinese imports. This could easily throw a wrench into China’s already rocky recovery.

The outlook is less certain for mega-cap tech plays, which have stolen the spotlight for the last several years. Tech titans may benefit from lower taxes and a lighter regulatory touch. However, antitrust scrutiny is unlikely to ease under Trump’s new regime. Rates are also under renewed pressure, which could prove a headwind for high-growth companies. And stricter immigration policies may hamper the flow of hiring and talent.

Finally, there are no major moves on the flows front for energy ETFs yet. However, the high-beta oil services ETFs, like the OIH, saw returns of more than 10% last wee. Meanwhile clean energy-focused funds, like the Invesco Solar ETF (TAN B-) and Global X CleanTech ETF (CTEC ) lost more than 10% each.

With the dust of the election results settling, investors can now shift their focus back onto economic and earnings growth heading into the new year. Whichever way the market bets, ETF flows will continue to race toward a new milestone by year-end.

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