Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the third week in four, injecting a net $13.8 billion for the Refinitiv Lipper fund-flows week ended Wednesday, Dec. 7. However, the headline number is misleading. Fund investors were net purchasers of money market funds (+$38.9 billion) and tax-exempt fixed income funds (+$47 million) while being net redeemers of equity funds (-$24.9 billion, their seventh largest weekly net redemption on record) and taxable bond funds (-$292 million) for the week.
Market Wrap-Up
The S&P 500 booked its longest losing streak in almost two months during the fund-flows week as investors did some serious handwringing over a better-than-expected November nonfarm payrolls report and a batch of strong economic data that fueled worries about the Federal Reserve’s ability to pivot to a less hawkish interest rate policy.
On the domestic side, the Dow Jones Industrial Average (-2.87%, its first weekly loss in seven) did the best job of mitigating losses of the broad-based U.S. indices for the fund-flows week. It was followed by the S&P 500 Index (-3.58%). The Nasdaq Composite (-4.44%) was the laggard of the group.
Overseas, the Shanghai Composite (+3.92%)—lifted by news that more Chinese cities eased COVID restrictions—posted the strongest returns of the often-followed broad-based international indices. In comparison, the Nikkei 225 (+1.04%) and the Xetra DAX (+1.05%) were the group relative laggards.
For the fund-flows week, the WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSE:USDU) (+1.80%) outpaced the Bloomberg Municipal Bond ETF (NYSE:TFI) (+0.82%) and the Morningstar LSTA U.S. Leveraged Loan Index (+0.13%).
On Thursday, Dec. 1, U.S. stocks ended mostly lower after the Institute for Supply Management’s manufacturing index showed that November U.S. factory activities contracted to a 30-month low, falling to 49% and signaling the economy is contracting. Earlier in the day, the Bureau of Economic Analysis reported that the Personal Consumption Expenditures Price Index increased a modest 0.3% in October—showing some easing price pressures.
The yearly inflation rate slowed to 6% in October from 6.2% in September. The 10-year Treasury yield dipped 15 basis points (bps), closing out the day at 3.53%, while the two-year Treasury yield declined 13 bps to 4.25%—its lowest closing value since Aug. 6. In other news, gold futures rose 3.16% on the day, settling at $1,801.10/oz., its highest close since August. To head off further protests, some Chinese cities began easing their strict COVID restrictions to defuse public anger over some of the world’s most strict COVID policies.
U.S. stocks closed mixed on Friday, Dec. 2, after the U.S. Department of Labor released a better-than-expected nonfarm payrolls report. The U.S. economy added 263,000 new jobs in November, beating expectations of 200,000, with the unemployment rate remaining unchanged at 3.7%.
The Bureau of Labor Statistics reported that wage growth accelerated to 5.1% over the past year. The new report stoked fears that another 75-bps rate hike might be back on the table for the Fed’s December policy-setting meeting. While the two-year Treasury yield rose three bps on the day to 4.28%, the 10-year Treasury yield declined two bps to 3.51%. Investors are beginning to question how high the terminal fed funds rate has to be to bring inflation down to the Fed’s goal of 2%.
The S&P 500 and Nasdaq Composite posted their worst one-day declines in almost a month on Monday, Dec. 5, after stronger-than-expected economic data exacerbated worries that the Fed might need to be more aggressive in its fight against inflation. The Institute of Supply Management’s November services report showed the services sector came in a stronger-than-expected 56.5%, signaling the U.S. economy is still expanding steadily.
This, accompanied by the wage inflation reported on Friday, stoked concerns about continued rising inflation. Investors pushed the 10-year yield up nine bps to 3.60%, and the two-year rose 13 bps to 4.41%. In other news, oil futures declined after Sunday’s OPEC+ decision to keep production quotas unchanged.
Stocks continued their decline on Tuesday, Dec. 6, with the S&P 500 witnessing its fourth consecutive day of losses as recessionary fears continued to grow. U.S. trade data showed the October trade deficit rose 5.4% to $78.2 billion, signaling weakening demand for U.S. goods and services. The 10-year Treasury yield declined nine bps to 3.51%.
U.S. stocks finished mostly lower on Wednesday, Dec. 7, as the S&P 500 posted its longest losing streak (five days) in nearly two months as investors assessed the likelihood of a more severe economic downturn than previously thought. The 10-year Treasury yield finished the day down nine bps at 3.42% as investors evaluated how long higher interest rates and slowing economic growth will linger in the coming year.
Exchange-Traded Equity Funds
Equity ETFs witnessed their second week of net outflows, handing back $9.2 billion for the most recent fund-flows week—their largest weekly net redemption since Apr. 20, 2022. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$8.3 billion), withdrawing money for the second consecutive week. In contrast, non-domestic equity ETFs witnessed their first week of net redemptions in 11, handing back $904 million this past week.
Equity income ETFs (+$437 million) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by mid-cap ETFs (+$216 billion) and global equity ETFs (+$24 million). Meanwhile, large-cap ETFs (-$4.7 billion) suffered the largest net outflows, bettered by international equity ETFs (-$929 million).
iShares Core S&P 500 ETF (NYSE:IVV) (IVV, +$1.3 billion) and SPDR® Portfolio S&P 500 Value ETF (NYSE:SPYV) (SPYV, +$449 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (NYSE:SPY) (SPY, -$6.9 billion) experienced the largest individual net redemptions and iShares Russell 2000 ETF (NYSE:IWM) ( -$862 million) suffered the second-largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the fourth week in five, taxable fixed-income ETFs witnessed net inflows, taking in $2.0 billion this week. APs were net purchasers of corporate investment-grade debt ETFs (+$1.7 billion), international & global debt ETFs (+$642 million), and flexible ETFs (+$313 million) while being net redeemers of government-Treasury ETFs (-$532 million) and government-mortgage ETFs (-$123 million).
iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF (TLT, +$1.4 billion), iShares 7-10 Year Treasury Bond (NYSE:IEF) ETF (IEF, +$1.1 million), and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$562 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) (SHY, -$1.3 billion) and SPDR® Bloomberg 1-3 Month T-Bill ETF (NYSE:BIL) (BIL, -$815 million) handed back the largest individual net redemptions for the week.
For the seventh week in a row, municipal bond ETFs experienced net inflows, taking in $952 million this week. iShares National Muni Bond ETF (NYSE:MUB) (MUB, +$330 million) witnessed the largest draw of net new money of the municipal bond ETFs. At the same time, VanEck Short Muni ETF (NYSE:SMB) (-$14 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 forty-fourth week in a row—redeeming $15.7 billion—with the macro-group suffering a market loss of 2.92% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $9.2 billion, also witnessed their forty-fourth consecutive week of net outflows while posting a 3.33% market decline on average for the fund-flows week. Non-domestic equity funds—posting a 1.94% weekly market decline on average—observed their thirty-fifth straight week of net outflows, handing back slightly less than $6.5 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$4.9 billion) and mid-cap funds (-$1.7 billion). Investors on the non-domestic equity side were net redeemers of international equity funds (-$5.4 billion) and global equity funds (-$1.1 billion) for the week.
Conventional Fixed Income Funds
For the sixteenth consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $2.3 billion this past week—while posting a 0.34% market gain on average for the fund-flows week. The government-Treasury funds macro-group (+$589 million) attracted the largest amount of net new money of the taxable bond funds group for the week, followed by government-Treasury & mortgage funds (+$241 million). Flexible funds (-$1.7 billion) suffered the largest net redemptions, bettered by balanced funds (-$991 million) and corporate investment-grade debt funds (-$543 million).
The municipal bond funds group posted an average of 0.80% market gain during the fund-flows week (their fourth consecutive weekly plus-side market return) and witnessed net outflows for the sixteenth straight week, handing back $905 million this week. While High Yield Municipal Debt Funds (+$505 million) attracted the largest net inflows of the macro-group, General & Insured Municipal Debt Funds (-$453 million) and Intermediate Municipal Debt Funds (-$326 million) suffered the largest net redemptions.
Year to date, the municipal bond funds macro-group handed back $140.2 billion—witnessing the largest net redemption thus far of any full year dating back to 1992 when Lipper began calculating weekly estimated net flows.