The Most Amazing Thing About This Week's Historic Shift Into Equities

This week we witnessed historic flows into stocks around the world. In fact, at $22 billion in inflows, it was the second-biggest week ever.

Perhaps the most remarkable detail about this week's flows, however, was in the fixed income data.

Surprisingly, despite all of the money flowing into equities, flows into bonds were robust as well – total flows into fixed income were $6.5 billion.

Furthermore, the gains were broad-based. Investment grade, high yield, and emerging market bond funds all recorded between $1.5 billion and $2 billion of inflows, while municipal bond funds grew by $1.6 billion. Only U.S. Treasuries – the world's largest bond market – saw any outflows, totaling $1.3 billion.

Jefferies analyst Daniel Fannon writes in a note to clients that taxable fixed income funds had their best week since March.

Money market funds saw big inflows as well – $22 billion this week, bringing the three-week total to $69 billion – but BofA Merrill Lynch strategist Michael Hartnett says flows are likely related to deposit outflows after unlimited FDIC insurance expired on December 31.

Hartnett and many other strategists across Wall Street are coalescing around the "Great Rotation" theme in 2013 – but it didn't happen this week. The idea is that investors stage a big rotation out of bonds, which have been in an epic bull market for over 30 years, and that money finally flows into stocks.

The chart below from Citi analyst Markus Rosgen provides a bit of perspective. With this week's historic move into equities, the flows are really starting to achieve liftoff.

At the same time, bond fund flows seem to be nearing trend again after a brief dip at the end of 2012:

However, flows into bond funds are definitely slowing down, even if they haven't stopped. The chart below plots the growth of assets under management in bond versus equity funds based on weekly fund flow data.

That is how Rosgen characterizes it, writing that the "switch to equities from bonds continues" this week.

And in case you haven't seen the statistics on this week's massive move into stocks:

• Total equity inflows were $22.2 billion, the second-largest ever.
• Inflows into long-only equity funds were $8.9 billion, the largest since March 2000 and the fourth-largest ever.
• Excluding ETF flows, inflows into equity funds were the largest since May 2001, and the first over $5 billion since April 2003, according to Goldman Sachs.
• Emerging market equity inflows were $7.4 billion, the largest in history.

Wall Street analysts are starting to talk about a correction in the stock market in the first half of this year. It will be interesting to see if the out sized flows into equities can continue.