Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the second week in a row, injecting a net $35.5 billion for the LSEG Lipper fund-flows week ended Wednesday, July 26. Fund investors were net purchasers of money market funds (+$28.8 billion), equity funds (+$3.2 billion), taxable bond funds (+$2.9 billion), and tax-exempt fixed income funds (+$552 million) for the week.
Market Wrap-Up
While the Dow Jones Industrial Average posted its longest winning streak (13 straight trading sessions) since 1987, mega-cap tech stocks and growth-oriented issues lost a bit of their mojo as investors kept a keen eye on the Q2 earnings season and the Federal Reserve Board’s 25-basis-point interest rate hike during the fund-flows week.
On the domestic equity side of the equation, the Dow (+1.31%) posted the strongest return of the broad-based U.S. indexes, followed by the S&P 500 (+0.02%) and the Russell 2000 (-0.23%). The Nasdaq Composite (-1.61%) was the laggard of the group. Overseas, the Shanghai Composite (+1.72%) rose to the top of the leaderboard of the often-followed broad-based international indexes, followed by the FTSE 100 (+1.45%) and the Xetra DAX Total Return index (-0.99%). Meanwhile, the Nikkei 225 (-1.24%) posted the largest decline for the flows week.
For the fund-flows week, the Morningstar LSTA U.S. Leveraged Loan Index (+0.16%) outpaced the Bloomberg Municipal Bond Index (+0.03%) and the Bloomberg U.S. Aggregate Bond Index (-0.46%). In anticipation of the Fed hiking its key lending rate at the end of the fund-flows week, the 10-year Treasury yield finished higher, rising 11 basis points (bps)—settling at 3.86%—while the two-year Treasury yield rose eight bps to close out the flows week at 4.82%. The U.S. Treasury yield curve remained inverted, with the two- and 10-year Treasury yield spread (-96 bps) narrowing by three bps for the week. The three-year Treasury yield witnessed the largest rise in yields for the week, jumping 13 bps to 4.47%.
On Thursday, July 20, U.S. stocks finished mostly higher, with the Dow posting its ninth consecutive day of upside performance as investors embraced value stocks while giving a cold shoulder to tech and growth-oriented issues. Tech issues witnessed declines after Netflix (NASDAQ:NFLX) released its Q2 earnings report, which showed revenue fell short of expectations. Adding to the pain, semiconductor shares took a beating after Taiwan Semiconductor Manufacturing (NYSE:TSM), while beating Q2 earnings expectations, reported contracting margins, and provided downbeat guidance. The 10-year Treasury yield rose 10 bps on the day in anticipation of the Fed hiking its key lending rate later in the flows week.
U.S. stocks ended mixed on Friday, July 21, with the Dow rising for the tenth straight day. Investors prepared for the expiration of $2.3 trillion of U.S.-listed options at the days end, the “special” rebalancing of the Nasdaq 100 index (implemented to ward off concentration risk and was effective on Monday’s open), and for earnings and guidance from mega-cap tech issues in the following week. According to our Refinitiv I/B/E/S team, of the 89 S&P 500 constituents that reported earnings thus far, 73% beat analyst expectations. However, year-over-year Q2 blended earnings growth estimates, excluding the energy sector, came in at negative 2.2%.
The Dow experienced its eleventh consecutive market rise on Monday, July 24, as investors drove up equities ahead of the Federal Open Market Committee (FOMC) policy-setting decision due out Wednesday and a busy week of corporate earnings reports. On the U.S. economic front, according to S&P Global (NYSE:SPGI) July surveys, the U.S. economy grew at its slowest pace in five months. The S&P U.S. services-sector index fell to 52.4 from 54.4 in June—its lowest reading since February, while its management sector index rose to 49 from 46.3, still signaling contraction.
All three of the commonly followed broad U.S. indexes rose on Tuesday, July 25, despite being in a holding pattern ahead of the Fed’s monetary policy decision and approximately 35% (170) S&P 500 companies due to report their Q2 earnings this week. Helping cement the generally upbeat sentiment on the day, Chinese stocks rallied after Beijing’s top leaders signaled support for its heavily indebted property sector. In other news, the Conference Board’s consumer confidence index jumped to 117.0 in July from 110.1 in June, beating analysts’ expectations and climbing to a two-year high, as worries over inflation and recession temporally ebbed.
On Wednesday, July 26, the Dow booked its thirteenth straight advance, logging its longest winning streak since 1987, after the Fed hiked its key lending rate by a broadly expected 25 bps to a range of 5.25% and 5.50%—its highest level in 22 years. The Fed signaled it is prepared to do more to get inflation down to its 2% target. In other U.S. news, according to the Commerce Department, new home sales declined 2.5% to an annual rate of 697,000 in June from a revised 715,000 in May.
Exchange-Traded Equity Funds
Equity ETFs witnessed net inflows for the fifth week in a row, attracting a little less than $10.3 billion for the most recent fund-flows week. Authorized participants (APs) were net buyers of domestic equity ETFs (+$9.2 billion), injecting money also for the fifth consecutive week, while nondomestic equity ETFs witnessed net inflows for the fourth week running, taking in $1.1 billion this past week. Large-cap ETFs (+$6.0 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by the commodities heavy, sector-other ETFs (+$1.3 billion) macro-group and small-cap ETFs (+$1.1 billion). Meanwhile, sector-technology ETFs (-$1.5 billion) suffered the largest net outflows, bettered by sector-healthcare/biotechnology ETFs (-$379 million).
iShares Core S&P 500 ETF (NYSE:IVV) (IVV, +$3.7 billion) and Invesco QQQ Trust (NASDAQ:QQQ) 1 (QQQ, +$2.6 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, iShares U.S. Technology ETF (NYSE:IYW) (IYW, -$1.818 billion) experienced the largest individual net redemptions and iShares MSCI USA Quality Factor ETF (NYSE:QUAL) (QUAL, -$1.755 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the fourth week in a row, taxable fixed-income ETFs experienced net inflows, taking in $2.2 billion this week. APs were net purchasers of government-Treasury ETFs (+$2.1 billion), corporate investment-grade debt ETFs (+$936 million), and international & global debt ETFs (+$39 million) while being net redeemers of corporate high-yield ETFs (-$469 million) and flexible ETFs (-$320 million).
iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF (TLT, +$3.126 billion), iShares Treasury Floating Rate Bond ETF (NYSE:TFLO) (TFLO, +$3.077 billion), and iShares Core U.S. Aggregate Bond ETF (NYSE:AGG) (AGG, +$793 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile iShares U.S. Treasury Bond ETF (NYSE:GOVT) (GOVT, -$2.9 billion) and Schwab Short-Term U.S. Treasury ETF™ (NYSE:SCHO) (SCHO, -$1.8 billion) handed back the largest individual net redemptions for the week.
For the second consecutive week, municipal bond ETFs witnessed net inflows, taking in $250 million this week. iShares National Muni Bond ETF (NYSE:MUB) (MUB, +$129 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares iBonds Dec 2023 Term Muni Bond ETF (NYSE:IBML) (IBML, -$15 million) experienced the largest net redemptions in the subgroup.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the seventy-seventh week in a row—redeeming $7.0 billion—with the macro-group posting a 0.07% market decline for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly more than $5.7 billion—witnessed their thirtieth consecutive week of net outflows while posting a 0.12% market loss on average for the fund-flows week. Nondomestic equity funds—posting a 0.08% weekly market rise on average—observed their twenty-third week of net outflows in a row, handing back slightly more than $1.3 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$3.7 billion) and equity income funds (-$803 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$1.0 billion) and global equity funds (-$304 million) for the week.
Conventional Fixed Income Funds
For the fourth week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—attracting $677 million this past week—while posting a 0.20% market loss on average for the fund-flows week. The flexible funds macro-group attracted the largest draw of net money for the week—taking in $611 million—followed by corporate investment-grade debt funds (+$215 million) and government-mortgage funds (+$195 million). Balanced funds (-$363 million) suffered the largest net redemptions, bettered by government-Treasury funds (-$157 million) and international & global debt funds (-$42 million).
The municipal bond funds group posted a 0.01% market decline on average during the fund-flows week (their second weekly market decline in three) and witnessed net inflows for the first week in five, attracting slightly more than $302 million this week. General & Insured Municipal Debt Funds (+$195 million) witnessed the largest net inflows of the macro-group, followed by Intermediate Municipal Debt Funds (+$190 million). Meanwhile, Short Municipal Debt Funds witnessed the largest net outflows, handing back $155 million.