Alight’s 401(k) Index reveals that trading activity on Monday, Aug. 5 was 8.3 times higher than that of an average day as worries simmered over yesterday’s downturn in global markets including the U.S. For context, the last time trading activity was this high was in March 2020, as markets were adjusting to the uncertainty of COVID-19.
“People overwhelmingly sought safety with nearly all net inflows going to Stable Value, Bond Funds, and Money Market accounts.”
Alight’s Rob Austin
“Throughout the 25-year history of the Alight Solutions 401(k) Index, we have seen trading activity spike when the market suddenly drops. Monday, August 5 was no exception,” said Rob Austin, Head of Thought Leadership at Alight. “People overwhelmingly sought safety with nearly all net inflows going to Stable Value, Bond Funds, and Money Market accounts.”
Alight defines a “normal” level of relative transfer activity as being when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the Alight Solutions 401(k) Index, equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.
Notably, after Monday’s downturn, the Dow Jones closed up by 0.8% Tuesday while the broader S&P 500 rose by 1.5%. The Nasdaq climbed 1% today after Wall Street’s worst day in almost two years on Monday.
Equities in 401(k)s rose again in July
The Alight 401(k) Index, which tracks the trading activity of over 2 million people and details the monthly volume, asset flows and market activity, was also updated this week with data from July 2024. The most recent index outlines key data from July, calling out that Bond (48%) and large U.S. equity funds (32%) saw the most inflows, while company stock (43%) and target date funds (28%) experienced the most outflows.
Trading activity held steady in July with two above-normal days, the same as in June. Year-to-date through July, there have been 25 above-normal days. Average asset allocation in equities peaked in June at a height unseen since January 2001 at 71.9%; and last month’s data shows a further climb up to 72.1%. As ongoing worries of slowing economic growth continue to take effect on markets, the report said this is a sign investors may be shifting to equities to hedge against inflation.
Investors favored fixed income funds on 13 of 22 days. New contributions to equities increased slightly from 69.6% in June to 69.7% in July, while average asset allocation in equities hit another new 23-year high, rising from 71.9% in June to 72.1% in July.
On average, 0.008% of 401(k) balances were traded daily.
SEE ALSO:
• 5 Key Findings from Alight’s 2024 Universe Benchmarks Report
• 401(k) Trading Sees Modest Uptick in April
• Market Downturn Reaction: Retirement Advisors Stress Restraint