Even as the S&P 500 clawed its way to a fresh record and squeezed out a third consecutive weekly gain, signs of fading enthusiasm in U.S. stocks have become increasingly difficult to ignore.

The latest can be seen in the SPDR S&P 500 Trust, the biggest ETF tracking the U.S. equity benchmark. As of Thursday, investors had pulled $3.8 billion out of it in July. That puts the fund on pace for a fourth consecutive monthly outflow, which would be the longest streak since the start of the bull rally in 2009.

Investors pulled $3.8 billion from the biggest ETF tracking the index in July, marking nearly fourth consecutive months of redemptions at the fund.
Investors pulled $3.8 billion from the biggest ETF tracking the index in July, marking nearly fourth consecutive months of redemptions at the fund. Bloomberg News

The $237 billion SPDR fund isn't the only one thinning out. Traders took $2.1 billion out of U.S. mutual funds and ETFs in the week ended July 12, ICI data show. That compared with $5.1 billion flowing into funds around the world. Bank of America Merrill Lynch’s most recent fund manager survey found allocation to U.S. stocks is the most underweight since 2008.

“We’ve contributed to that because we’ve been moving money out of large-cap stocks in the U.S.,” said Ed Keon, managing director and portfolio manager at Quantitative Management Associates. “We’re not bearish; it’s just a question of better growth with lower valuations elsewhere.”

The S&P 500 touched new highs this past week before retreating as an intensifying investigation into President Donald Trump stoked concern that his economic agenda may stall. The benchmark gauge added 0.5% in the five days to end at 2,472.54. The Nasdaq 100 jumped 1.4%, ending the week at a record 5,921.525. The Dow Jones Industrial Average slipped 0.3% to 21,580.07.

Strong earnings growth this year has kept the S&P 500’s price-to-earnings multiple below its March peak, despite the index reaching all-time highs. Even so, most equity valuations outside the U.S. remain more compelling.

Slideshow
Record redemptions for largest mutual funds
Fifteen of the 20 biggest open-end funds report net outflows over the last five years.

In Europe, German and French shares trade at a trailing P/E of as low as 18.9, compared with the S&P 500’s 21.6. Japanese shares are at 19.2, and emerging-market stocks tracked by MSCI trade at 16.1. MSCI’s world index excluding the U.S. trades at 19.7.

Utility shares led the S&P 500’s advance this past week, climbing 2.6% in their best performance since February as the 10-year Treasury yield dropped nine basis points. Real estate shares added 0.8%.

Technology stocks rallied for the fourth week in five as the Nasdaq 100 jumped 1.4%. Industrial and financial stocks weighed on the market.

Bloomberg News