US Stocks Keep Rising Despite Bad News! Capital Flows into Semiconductors, High-Yield Bonds, and Bitcoin

Semiconductor stocks have plunged, Treasury yields remain elevated, and geopolitical risks remain unresolved. Wall Street has seen a steady stream of bad news lately, yet the flow of capital tells a completely different story. As US stocks reach new highs, money is also pouring into high-yield bonds and Bitcoin ETFs, pushing Bank of America's Bull & Bear Indicator to its highest level since 2021, indicating a clear shift toward optimism in market sentiment.

Last week, the S&P 500 index hit a new all-time high, while the Nasdaq 100 delivered its strongest weekly performance in nearly two months. At the same time, high-yield bond funds attracted $4 billion in weekly inflows—the highest in nearly two years—while Bitcoin-related ETFs saw a net inflow of $500 million over five trading days.

Bank of America's 'Bull & Bear Indicator' rose accordingly to its highest point since 2021, reflecting a clear turn toward market optimism.

This wave of optimism followed a dramatic event. The AI-focused hedge fund Situational Awareness, founded by Leopold Aschenbrenner, known as the 'Oracle of Silicon Valley,' collapsed, dragging the Philadelphia Semiconductor Index down 29% from its June peak.

Yet, instead of retreating into safe-haven assets as in the past, the market treated this turmoil as a buying signal. Within just two trading days, over $2 billion flowed into the 3x leveraged semiconductor ETF (SOXL-US), which then surged more than 50% over the following seven trading sessions.

The two largest non-leveraged semiconductor ETFs also collectively attracted over $7 billion in new capital during the same period, each rising approximately 16%. Overall, leveraged and non-leveraged semiconductor funds combined attracted over $11 billion in inflows last week.

Michael O'Rourke, Chief Market Strategist at JonesTrading, described this surge in buying as a 'tsunami' of momentum-driven investment. However, he cautioned that much of the capital remains concentrated in the largest tech stocks, with the 'Magnificent Seven' still driving the bulk of the index gains.

From equities to bonds to cryptocurrencies—risk appetite returns across asset classes

Analysts point out that the rally is not driven solely by chip stocks, but by broad-based capital inflows across multiple asset classes.

According to Bank of America data, high-yield bond funds saw $4 billion in net inflows last week—the highest single-week inflow in two years. Despite Bitcoin's price remaining range-bound for months, Bitcoin ETFs still attracted $500 million in capital over five trading days.

As a result, Bank of America's Bull & Bear Indicator climbed to its highest level since 2021. Michael Hartnett's strategist team at BofA noted that the rally has expanded beyond core tech sectors, supported by strong high-yield bond inflows and narrowing credit spreads, collectively fueling this optimistic sentiment.

Garrett Melson, Portfolio Strategist at Natixis Investment Managers Solutions, believes current market concerns are overblown and that the fundamentals of risk assets remain solid.

He currently maintains an overweight position in US equities, focusing on large-cap tech stocks, while remaining underweight in fixed income.

Melson emphasizes that the overall economy remains strong, and while sentiment and positioning can sometimes extend too far, such overheating is only a localized phenomenon. Sector rotation, he argues, actually helps deflate bubbles while supporting broader market gains.

Yields remain stubbornly high—the biggest concern

However, this bull market is not without shadows. Although the 30-year US Treasury yield fell on four of the past five trading days, it still hovers near a nearly 20-year high, creating persistent pressure on the market.

There is no consensus on why yields remain so high.

One camp argues that the July spike was due to Federal Reserve Chair Kevin Warsh failing to provide clear rate guidance, leading to doubts about the Fed's commitment to fighting inflation. Another camp believes it reflects investor confidence in continued economic expansion.

Last Friday's unexpectedly weak US July employment data, coupled with downward revisions to the previous two months, actually boosted equities and pushed yields lower. The market now bets the Fed won't be forced to hike rates in the near term.

Lindsay Rosner of Goldman Sachs Asset Management noted that as data becomes clearer and oil prices stabilize, the full economic picture and return on capital expenditures are becoming more transparent. The overall economy remains strong, and the market is digesting AI-related supply-side changes.

Ayako Yoshioka, Senior Investment Strategist at Wealth Enhancement, warned that while semiconductors remain central to AI infrastructure, the next bottleneck may shift to power supply shortages. She also stressed that rising yields themselves remain a risk that must be monitored.

Every pullback treated as a buying opportunity—bullish confidence grows stronger

Analysts note that underpinning this risk appetite is a psychological inertia repeatedly validated in the market: every correction is brief, and every panic becomes an entry point.

Nathan Thooft, Senior Portfolio Manager at Manulife Investment Management, observed that price corrections have repeatedly proven to be fleeting, and this experience continuously reinforces investor confidence. In contrast, those who exit during periods of highest uncertainty often miss the strongest subsequent rebounds.

Thooft stated outright that while cash feels safe, it is difficult to outpace inflation and equity earnings growth over the long term. He believes that over the past decade, most investors who kept waiting for a better entry point have been left behind by the market.

The market's rapid emotional recovery is also reflected in volatility indicators. The Cboe Semiconductor ETF Volatility Index dropped nearly 9 points this week—the largest weekly decline this year. Despite an expanding list of risks, the actual flow of capital clearly points toward risk assets.