The thesis is that the recent selling in the broad S&P 500 index isn't investors fleeing to safety — it's money rotating between individual stocks, and the fact that credit markets and financial stocks are still hitting all-time highs while overall market fear gauges stay calm confirms there's plenty of liquidity sloshing around, making SPY a buy.
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The financial sector ETF (XLF) is hitting record highs and companies are borrowing at the fastest pace in months — nearly double last year's rate — which signals that credit is flowing freely and the broader financial system is still in an expansionary phase, making financials a buy.
Capital Flows thinks money is rotating out of last cycle's hot trades and piling into AI infrastructure the same way it flooded into dot-com stocks in the late 90s and crypto in 2021, and Nvidia — as the dominant supplier of the chips that power AI — is the clearest way to ride that wave as it's just getting started.