Mar 27, 2017 08:02 AM EDT
Wall Street has been put on defensive mode ever since Donald Trump became the president of the United States. This led to investors pulling out $8.9 billion from US stock funds that ended on March 22 according to a research conducted by EPFR Global.
The amount is said to be the biggest retreat since last June. Notably, the hardest-hit stocks were the ones that skyrocketed after the presidential elections. Investors have yanked money from banks, manufacturers and small-cap stocks, which is considered to be the most vulnerable when it comes to fluctuations of the US economy.
Investors are not the only one backing away as the stock market has also lost 250 points this week. It is the worst weekly performance recorded since the week prior to Trump's announcement as president. Analysts put the blame on the Republicans who have since challenged the Obamacare by trying to pass a bill to repeal and replace it. Investors fear that a failure on health care could be detrimental to the massive tax cuts that Trump has promised.
The Bank of America Merrill Lynch said that failure to pass the repealed health care is unlikely to cause a TARP moment. This refers to the nine percent crash in the S&P 500 after Congress rejected the Wall Street bailout package in September 2008, CNNMoney has learned. But BofA reiterated that a failure on health care could cause a credibility hit that would temporarily push stocks and Treasury yields lower.
According to EPFR, the retreat from US stocks means that investors have taken the defensive route as they question whether the Trump administration has the necessary focus and political skills to get its economic agenda through Congress. One instance is when investors pulled out $1.1 billion from small-cap stocks last week, which is the most in the past six months. Similarly, industrial stocks also suffered biggest outflows since mid-January.
The problem is: where should investors put their money?
Two investment pots that benefitted from the uncertainty of the US economy are emerging markets and bonds that have enjoyed significant inflows in the past week. Gold has also gone back into style with investors pouring in $1.1 billion into gold funds for the past weeks. Again, the future depends whether Trump and the Republicans can resolve the issue on health care.
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