ETFs churning most cash ever as $47 billion flows to market

Profit Growth

While profit growth has slowed, the S&P 500’s valuation is in line with the historical average. The S&P 500 trades at 16.8 times earnings, compared with the 10-year average of 16.3, data compiled by Bloomberg show. After this year, companies will resume their profit expansion, with S&P 500 earnings forecast to increase more than 10% in 2014 and in 2015, according to analyst estimates.

Alcoa Inc., which beat analyst profit estimates for the third quarter, is up 6.3% in October, after the last four months’ performance mirrored ETF flows. The largest U.S. aluminum producer rallied 5.5% in September, dropped 3.1% in August and gained 1.7% in July. In June, the shares fell 8%.

Regeneron Pharmaceuticals

Shares of Regeneron Pharmaceuticals Inc., the maker of the eye medicine Eylea, have risen and fallen in the same months flows have gone in and out of ETFs. It led the S&P 500 higher last month, rising 29%, after a 10% drop in August and a 20% gain in July. Analysts project the Tarrytown, New York-based company will boost earnings 57% this year and another 29% in 2014, data compiled by Bloomberg show.

Morgan Stanley has advanced 10% in October. The owner of the world’s biggest retail brokerage posted earnings that exceeded the average analyst estimate and is forecast to increase them another 36% next year. The shares had risen and fallen in line with the pattern of ETF flows since June.

Of the 100 S&P 500 companies that have posted earnings so far this reporting season, 70 have surpassed the projections of analysts, data compiled by Bloomberg show. The S&P 500 is up 5.4% since Oct. 8, when Alcoa was the first company in the index to report.

“The stock market fooled the hand wringers yet again,” said Howard Ward, the chief investment officer for growth equity at Rye, New York-based Gamco Investors Inc., which oversees about $40 billion. “Now that we have at least a temporary deal in Washington, I suspect this will push some ETF money, or market-timing money, in the direction of stocks.”

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