by Tom Roseen.
For the sixth week in a row, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $12.1 billion for Lipper’s fund-flows week ended October 9, 2019. Fund investors were net purchasers of money market funds (+$14.7 billion), taxable fixed income funds (+$2.9 billion), and municipal bond funds (+$1.4 billion). However, they were net redeemers of equity funds (-$6.9 billion).
For the fund-flows week ended October 9, 2019, market volatility was ever-present, but the broad-based U.S. indices managed to move into positive territory. During the week, investors were hand fed a Goldilocks nonfarm payrolls report that many pundits interpreted as showing continued labor market strength while also leaving some wiggle room for the Federal Reserve Board to apply another interest rate cut in the near term. However, the bipolar nature of the trade negotiations between the U.S. and China led to some large market swings. The NASDAQ Composite Price Only Index (+1.52%) posted the strongest returns of the broadly followed U.S indices for the fund-flows week, followed by the S&P 500 Price Only Index (+1.10%), while the Russell 2000 Price Only Index (-0.01%) suffered the only losses. Overseas, the Xetra DAX Total Return Index posted the strongest plus-side returns of the subgroup, rising 1.74% for the fund-flows week, while the Nikkei 225 Price Only Index (-1.51%) witnessed the largest one-week decline of the other often followed broad-based global indices.
Stocks rallied on Thursday, October 3, from the previous day, when they suffered the worst single session decline since August 23. Investors appeared to bet that signs of a slowing economy would be a harbinger for the Fed to lower interest rates in October, which recently has been beneficial to stock prices. After a disappointing Institute for Supply Management reading on manufacturing was released on Tuesday, investor concerns over a recession—or at least a softening economy—were exacerbated after release of the September ISM non-manufacturing index reading, which showed a decline from its August reading. According the CME FedWatch indicator, investors bet the chances of another interest rate cut at the Fed’s October meeting was 90.3%, up from 77% the day before. After the release of the nonfarm payrolls report, which showed the U.S. economy added 136,000 new jobs in September, investors pushed stocks higher. While narrowly missing analyst expectations, the report calmed fears of a recession, but supported investors’ thoughts that the Fed would feel a need to cut rates in October to prop up the economy, although the FedWatch Indicator dropped to an 80.7% chance.
On Monday, October 7, markets declined ahead of a new round of high-level negotiations between the U.S. and China. While Director of the National Economic Council Larry Kudlow told reporters that the Trump administration could be open to a short-term deal, other news reports indicated that Chinese officials were reluctant to hammer out a broad agreement at the end of the week, reportedly taking the issue of intellectual property rights off the table. On Tuesday, the U.S. markets took another nose dive even after the Federal Reserve Board said it would soon begin expanding its balance sheet through the purchase of short-term government debt. Investors turned sour after learning that the Trump administration was considering applying restrictions on capital flows into China, the U.S. had blacklisted 28 Chinese companies for their reported role in human rights violations, and that China’s Vice Premier Liu He would not be representing his country as a special envoy during this week’s meetings as previously thought. On Wednesday, October 9, stocks moved higher after reports indicated that China might consider a limited tariff resolution and that it offered to increase purchases of agricultural products from the U.S. Oil futures slumped for the day after U.S. government data showed a rise in crude supplies.
Exchange-Traded Equity Funds
For the third week in a row, equity ETFs witnessed net outflows, handing back $3.0 billion for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$3.3 billion), also for the third week running. Meanwhile, nondomestic equity ETFs witnessed net inflows for the second consecutive week—however, they took in only $261 million this past week. iShares Core S&P 500 ETF (IVV, +$1.1 billion) and Consumer Staples Select Sector SPDR ETF (XLP, +$775 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 (SPY, -$4.9 billion) experienced the largest individual net redemptions, and iShares QQQ Trust 1 ETF (QQQ, -$974 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the third straight week, taxable fixed income ETFs witnessed net inflows, but took in just $178 million. APs were net purchasers of government-Treasury ETFs (+$2.0 billion) and government-mortgage ETFs (+$236 million) while being net redeemers of corporate high yield ETFs (-$1.2 billion) and international & global debt ETFs (-$457 million). iShares U.S. Treasury Bond ETF (GOV, +$751 million) and SPDR Portfolio Long-Term Treasury ETF (SPTL, +$314 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$731 million) and iShares Short Maturity Bond ETF (NEAR, -$559 million) handed back the largest individual net redemptions for the week. For the second week in three, municipal bond ETFs witnessed net inflows, taking in $243 million.
Conventional Equity Funds
For the thirty-fourth consecutive week, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $3.9 billion. Domestic equity funds, handing back a little less than $2.9 billion, witnessed their thirty-fifth weekly net outflows while posting a 0.90% return on average for the fund-flows week. Their nondomestic equity fund counterparts, posting a 0.92% gain on average, witnessed their eighth consecutive week of net outflows, handing back some $1.0 billion this past week. On the domestic equity side, fund investors turned their backs on large-cap funds (-$1.8 billion) and mid-cap funds (-$574 million), while investors on the nondomestic equity side were net sellers of international equity funds (-$892 million) and global equity funds (-$145 million).
Conventional Fixed Income Funds
For the first week in three, taxable bond funds (ex-ETFs) witnessed net inflows, attracting some $2.7 billion this past week while posting a 0.18% return for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$2.2 million) and flexible funds (+$456 million), while corporate high-yield funds (-$323 billion) and corporate high-quality funds (-$29 million) witnessed the largest net outflows of the group. For the fortieth straight week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.1 billion—while posting a 0.39% gain on average for their third consecutive weekly market gain.