Wall Street stocks may now technically be va bull marketbut exchange-traded fund investors seem to be largely resisting the siren call to jump on the rally.

Net inflows into U.S. stock ETFs rose to $22.1 billion in May, their highest level this year, according to data from BlackRock. However – tech stocks aside – there seemed to be more enthusiasm for more idiosyncratic assets such as Japanese stocks and gold.

“The overarching theme is that flows into US equities have picked up, but they’re still nowhere near the peak flows we’ve seen in the past,” said Karim Chedid, head of investment strategy for BlackRock’s iShares Europe, Middle East and Africa arm. .

The relatively lackluster buying suggests unusually muted enthusiasm for U.S. stocks, even as the S&P 500 is up more than 20 percent from its October low.

Morgan Stanley analysts welcomed the break through the bull market barrier, warning that they “still expect a meaningful recession in earnings this year.” [a 16 per cent year-on-year decline] which has not yet been priced”. Meanwhile, Mark Haefele, chief investment officer at UBS Global Wealth Management, advised “investors to continue to proceed with caution” because “there is no way to know whether the bottom of the bear market – the final low of the market cycle – is behind us”.

“If the economy were to contract later this year, as we continue to think, times could be much worse for stocks,” said Thomas Mathews, chief market economist at Capital Economics.

Scott Chronert, global head of ETF research at Citigroup, said inflows into technology-focused ETFs “tell the story of AI” as investors bet rapid developments in artificial intelligence will benefit a handful of tech stocks, while outflows from sensitive-sector economic ETFs they point to “ongoing recession fears”.

Chedid noted that the notional “S&P 492” — the flagship index stripped of its eight largest constituents — is actually down a fraction this year. In this context, ETF investors were “buying a concentrated portion of the market through technology exposures.”

Tech ETFs earned a net $15.9 billion globally in May, BlackRock figures show. Chedid warned that the figure had been artificially inflated by $5.5 billion due to technicalities related to reclassification of certain technology stocks as financial companies.

However, even $10.4 billion, fueled by six straight weeks of inflows, is still enough to make tech comfortably the most popular sector to date.

“There is a sentimental story about technology. It makes sense why that happened because we had an AI rally,” Chedid said, adding that while the position in the broad U.S. stock futures market “doesn’t look crowded, in [tech heavy] Nasdaq”.

Some of those who are not excited about the US stock market are looking at Japanese stocks instead. U.S. and European ETFs focused on Tokyo stocks attracted a net $1.9 billion in May, the second month of +$1 billion in a row and the strongest buying since 2020.

“Funds providing exposure to Japanese stocks have been popular as US investors have sought the high dividend yields offered in developed international markets,” said Todd Rosenbluth, head of research at consultancy VettaFi.

Its data showed that the iShares MSCI Japan ETF (EWJ) pulled in a net $715 million in May, while the currency hedged WisdomTree Japan Hedged Equity ETF ( DXJ ) attracted $240 million.

“Overseas purchases are picking up from nowhere,” Chedid said, which he attributes in part to the “acceleration” of Japan’s corporate reform agenda, which has seen “significant improvements in the behavior of responsible shareholders.”

In addition, he also cited an “interesting” macroeconomic environment in Japan with firming growth, even as it falters elsewhere due to the country’s late outbreak from the Covid lockdown.

“They reopened much later, which means they’re still experiencing a reopening trend, so growth is still picking up,” Chedid said. “They are also seeing an increase in inflation. [That combination] is usually good for markets and out of cycle with the rest of the world.”

He predicted that Japan’s foreign purchases “must go further” given that ownership is still limited.

“Based [BlackRock’s] expected performance analysis for Japan, optimized [global] the equity portfolio would have a 10.2 percent allocation to Japan, but currently it is 4.8 percent,” Chedid said.

Gold ETFs also shined, with May flows of $1.9 billion increasing to $4.3 billion since March, after a long period of out-of-favor, with a net outflow of $27.2 billion between April 2022 and the turning point in March .

Rosenbluth said gold ETFs have been a “safe haven for investors during the U.S. debt ceiling crisis,” with shares of SPDR Gold (GLD) adding $875 million and the cheaper SPDR Gold MiniShares Trust (GLDM) $205 million.

A resolution to this crisis could wipe out a source of support for the metal, but Chedid believed there were still “buyers” despite gold trading near all-time highs.

“Real rates have stabilized and physical demand has returned after being rather lackluster for four years due to blockades in India and China, the two biggest markets. And central banks are buying gold,” he said.

Overall, ETFs earned a net $77.3 billion in May, up from $53.5 billion in April, with equity flows reaching $41.8 billion, up from $26.9 billion in April, and fixed income increased from 25.2 billion to 33.1 billion dollars.