Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the second consecutive week, injecting a net $19.2 billion for the LSEG Lipper fund-flows week ended Wednesday, June 14. Fund investors were net purchasers of equity funds (+$19.9 billion) and taxable bond funds (+$6.4 billion) while being net redeemers of money market funds (-$6.8 billion) and tax-exempt fixed income funds (-$257 million) for the week.
Market Wrap-Up
A broad-based upturn in the markets during the fund-flows week ahead of an anticipated pause in the Federal Reserve Board tightening campaign and China easing its monetary policy to get its economy back on track helped the broad U.S. indexes extend recent gains, with the S&P 500 technically exiting its bear market doldrums (closing 20% above last year’s October lows) during the fund-flows week.
On the domestic equity side of the equation, the Nasdaq Composite (+3.98%, its best performance in 19 weeks) posted the strongest return of the broad-based U.S. indexes, followed by the S&P 500 (+2.46%) and the Dow Jones Industrial Average (+0.93%). The Russell 2000 (-0.76%) was the laggard of the group.
Overseas, the Nikkei 225 (+5.19%, its strongest one-week return since the flows week ended November 16, 2022) posted the strongest plus-side returns of the often-followed broad-based international indexes, followed by the Xetra DAX Total Return Index (+3.60%) and the FTSE 100 (+1.59%). Meanwhile, the Shanghai Composite (+0.52%) was the relative laggard for the flows week.
For the fund-flows week, the Morningstar LSTA U.S. Leveraged Loan Index (+0.73%) outpaced the Bloomberg Municipal Bond Index (+0.14%) and the Bloomberg U.S. Aggregate Bond Index (+0.08%). The 10-year Treasury yield rose four basis points (bps) for the week, settling at 3.83%, while the two-year Treasury yield rose 18 bps to close out the flows week at 4.74%. The U.S. Treasury yield curve remained inverted, with the two- and 10-year Treasury yield spread (-91 bps) widening 14 bps for the week.
On Thursday, June 8, U.S. stocks closed higher, pushing the S&P 500 index out of bear-market territory after first-time jobless claims for the prior week rose 28,000 to 261,000 (a 21-month high), with investors believing that might give Federal Reserve officials more fodder to skip a rate hike at its next FOMC policy-setting meeting at the end of the flows week.
All three major U.S. stock indexes posted small gains on Friday, June 9, as investors awaited the Fed’s policy decision on interest rates. The Nasdaq chalked up its seventh consecutive weekly gain (its longest winning streak since November 2019), and the S&P 500 cemented its fourth week of plus-side returns. Fed-fund futures traders priced in a 71.2% probability that the central bank will announce that it is keeping its key-lending rate at a range between 5.00% to 5.25% at the conclusion of its two-day policy-setting meeting on June 14, according to the CME FedWatch tool.
The S&P 500 and Nasdaq Composite closed near 14-month highs on Monday, June 12, as investors cautiously awaited inflation data, the Fed’s interest rate decision, and the retail sales report due out later in the week.
U.S. stocks moved higher on Tuesday, June 13, after inflation data reinforced investor expectations that the Fed will skip an interest rate hike this week to get a better view of the economy before pulling the trigger again. The U.S. May consumer price index rose 0.1%, with the year-over-year rate of inflation slowing to 4.0% from April’s 4.9%—its lowest level since March 2021.
Core inflation, which strips out the more volatile food and energy sectors, while coming in higher at 0.4%, was in line with analysts’ expectations. The year-over-year rise of core inflation slowed to 5.3% from April’s 5.5%, supporting a temporary pause in rate hikes. Aiding stock advances, China eased its monetary policy and hinted at more stimulus to come.
On Wednesday, June 14, U.S. stocks ended mixed after the Fed held interest rates steady at the close of its policy-setting meeting but left the door open for more increases this year. In the FOMC statement, committee members said, “Holding the target rate steady at this meeting allows the FOMC to assess additional information and its implications for monetary policy.”
However, Jerome Powell said, “Nearly all policymakers view further hikes this year appropriate.” As a result, fed-fund futures traders pushed the probability of a 25 bp hike in July to 64.5%, according to the CME FedWatch tool.
Exchange-Traded Equity Funds
Equity ETFs witnessed net inflows for the third week in four, attracting a little more than $25.2 billion (their largest weekly net inflows since February 10, 2021) for the most recent fund-flows week. Authorized participants (APs) were net buyers of domestic equity ETFs (+$18.2 billion), injecting money also for the third week in four, while nondomestic equity ETFs witnessed net inflows for the fifth week in six, taking in $7.0 billion this past week (their strongest weekly net inflows on record).
Large-cap ETFs (+$12.0 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by international ETFs (+$6.7 billion) and small-cap ETFs (+$3.4 billion). Meanwhile, sector-energy ETFs (-$706 million) suffered the largest net outflows, bettered by the gold and natural resources ETFs (-$675 billion).
iShares Russell 2000 ETF (NYSE:IWM) (IWM, +$2.5 billion) and iShares Core S&P 500 ETF (NYSE:IVV) (IVV, +$2.4 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, iShares ESG MSCI USA Leaders ETF (SUSL, -$2.2 billion) experienced the largest individual net redemptions and SPDR S&P 600 Small Cap (NYSE:SLY) ETF (SLY, -$1.7 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second week in a row, taxable fixed income ETFs experienced net inflows, taking in $4.4 billion this week. APs were net purchasers of corporate investment-grade debt ETFs (+$1.7 billion), government-mortgage ETFs (+$836 million), and government-Treasury ETFs (+$664 million) while being net redeemers of government-Treasury & mortgages ETFs (-$15 million).
iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) (LQD, +$950 million), iShares MBS ETF (MBB, +$792 million), and iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF (TLT, +$448 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$291 million) and iShares TIPS Bond ETF (TIP, -$225 million) handed back the largest individual net redemptions for the week.
For the second consecutive week, municipal bond ETFs witnessed net outflows, handing back $89 million this week. SPDR® Nuveen Bloomberg Municipal Bond ETF (NYSE:TFI) (TFI, +$64 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (NYSE:MUB) (MUB, -$85 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-first week in a row—redeeming $5.3 billion—with the macro-group posting a 1.94% market gain for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly more than $4.6 billion—witnessed their twenty-fourth consecutive week of net outflows while posting a 1.75% market advance on average for the fund-flows week. Nondomestic equity funds—posting a 2.57% weekly market gain on average—observed their seventeenth week of net outflows in a row, handing back slightly less than $682 million this week.
On the domestic equity side, fund investors were net redeemers of mid-cap funds (-$1.5 billion) and large-cap funds (-$1.4 billion). Investors on the nondomestic equity side were net redeemers of international equity funds (-$650 million) and global equity funds (-$32 million) for the week.
Conventional Fixed Income Funds
For the second week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—attracting $2.0 billion this past week—while posting a 0.34% market gain on average for the fund-flows week. The corporate investment-grade debt funds macro-group attracted the largest draw of net money for the week, taking in $4.0 million, followed by government-mortgage funds (+$920 million) and corporate high-yield funds (+$615 million). Balanced funds (-$47 million) suffered the largest net redemptions, bettered by government-Treasury & mortgage funds (-$12 million) and corporate high-quality funds (-$2 million).
The municipal bond funds group posted a 0.15% market rise on average during the fund-flows week (their third weekly market gain in a row) and witnessed net outflows for the sixteenth week 17, handing back $168 million this week. General & Insured Municipal Debt Funds (+$211 million) witnessed the largest net inflows of the macro-group, followed by High Yield Municipal Debt Funds (+$79 million). Meanwhile, Short Municipal Debt Funds witnessed the largest net outflows, handing back $307 million.
Money Market Funds
Given the market rally and relatively upbeat view on interest rates—for the first week in eight—investors were net redeemers of money market funds, withdrawing $6.8 billion. Money Market Funds (+$4.1 billion) took in the largest draw of net new money for the week, followed by U.S. Treasury Money Market Funds (+$3.6 billion), while Institutional U.S. Treasury Money Market Funds (-$9.0 billion) and Institutional U.S. Government Money Market Funds (-$8.7 billion) suffered the largest net redemptions.