Investing.com -- Market research firm Yardeni Research highlighted four reasons why it expects that foreign investors will continue to pour funds into the US capital markets.
First, over the 12 months ending in November, US net foreign capital inflows increased sharply, totaling $1.2 trillion.
Second, during the same period, foreign private investors significantly increased their net purchases of US bonds and stocks, reaching $934.5 billion and $236 billion, respectively.
Third, Yardeni notes that private foreign investors acquired $509.4 billion in US Treasury notes and bonds, $108 billion in government agency bonds, and $317.1 billion in domestic corporate bonds over the past year, demonstrating widespread interest in both government and corporate debt.
Fourth, foreign investment in US equities has also hit record levels, with $76.5 billion flowing into stocks over the past three months. However, the firm highlights that their buying historically acted as a contrarian indicator.
“They tend to be big buyers right before bear markets,” Yardeni cautioned.
US stocks rose on Tuesday, driven by relief that President Donald Trump did not raise tariffs on the first day of his second term, as many had anticipated. Instead, he announced plans to impose tariffs on Canada and Mexico starting February 1.
Markets also reacted positively to news of a $100 billion joint venture for AI infrastructure, involving SoftBank (TYO:9984), OpenAI, and Oracle (NYSE:ORCL).
After the market closed, Trump clarified that his administration is considering a 10% tariff on China, a significant reduction from the 60% he mentioned during his campaign. Meanwhile, Brent crude oil prices fell 3.3% since January 15, following Trump's executive orders aimed at boosting US oil and gas production.
The dollar weakened on Monday after the unexpected tariff delay but may recover if foreign investors continue purchasing US bonds and stocks.
"They [foreign] and domestic investors have less to fear right now about monetary policy and inflation in the US,” Yardeni said. “In addition, a US debt crisis doesn't seem to be imminent. Nor does a spike in oil prices caused by a geopolitical crisis."
These developments have eased concerns that weighed on the market in recent weeks, contributing to a pullback in equities since early December.
With improving sentiment, Yardeni Research suggests the path of least resistance is upward, especially if the Q4 2024 earnings season delivers the expected 12% year-over-year growth.