by Jack Fischer.
During Refinitiv Lipper’s fund-flows week ended July 14, 2021, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the fifth week in a row, withdrawing $23.1 billion.
Money market funds (-$30.7 billion) saw their second-largest weekly outflows of the year, while taxable bond funds (+$4.8 billion), tax-exempt bond funds (+$2.3 billion), and equity funds (+$628 million) attracted new money. Tax-exempt bond funds have attracted weekly net inflows for 19 consecutive weeks.
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based indices traded mixed, with the small-cap Russell 2000 lagging the market once again (-2.24%). The DJIA (+0.72%) and S&P 500 (+0.37%) both recorded positive weekly performances, while the NASDAQ ended the week in the red (-0.14%). The S&P 500 has nine straight fund-flows weeks of plus-side performance. Over the week, Treasury yields rose slightly across the yield curve—shorter-dated yields continue to rise quicker than longer-dated yields. The two-10 Treasury yield spread increased by 1.99%. Overseas indices reported mixed performance as well—Nikkei 225 (+1.37%), DAX 30 (+0.78%), FTSE 100 (-0.20%), and Shanghai Composite (-0.84%). The United States Dollar Index (DXY) fell 0.25%, while the VIX increased some (+0.31%) on the week.
On Thursday, July 8, broad-based U.S. markets, as well as Treasury yields, fell on the day. The pullback was led by the Russell 2000 (-0.94%)—the index’s third consecutive negative daily performance. The NASDAQ (-0.72%) ended its five-day run. The two-year Treasury yield fell 11.11%—the largest daily slide since mid-March. Thirty-year mortgage rates also decreased for the second straight week (-2.68%). News of Japan’s state of emergency surrounding the COVID-19 delta variant, hawkish Federal Reserve minutes, and a worse than expected jobless claims number all contributed to a poor day for the markets.
However, just like that, Friday, July 9, showed the resilience of the U.S. equity markets. The Russell 2000 (+2.17%), DJIA (+1.30%), S&P 500 (+1.13%), and NASDAQ (+0.98%) all rebounded from the prior session—marking new all-time highs for the DJIA, S&P 500, and NASDAQ. A selloff ensued with Treasuries as the two-year and three-year yields rose 13.02% and 11.48%, respectively. The calendar week closed on an upbeat note, as investors looked forward to the start of what is expected to be a bountiful Q2 earnings season thanks to increased demand and disposable income. Refinitiv Proprietary Research forecasted the S&P 500 Q2 year-over-year earnings and revenue growth to be 65.8% and 18.5%, respectively. A quarterly earnings growth of 65.8% would be the largest since Q4 2009 which followed the global financial crisis.
On Monday, July 12, equity markets finished slightly up, as volatility remained relatively unchanged. Lumber has retreated from its recent spikes. Lumber futures that were trading at more than $1,600 just two months ago are back down to around their 52-week lows—at the time of writing about $490. However, not all commodities are seeing declines, between high demand for travel and failed talks over OPEC+ production policy, WTI Crude has been trading above $70 per barrel.
According to the U.S. Bureau of Labor Statistics (DOL), the Consumer Price Index (CPI) released on Tuesday, July 13, increased 0.9% in June from May—representing the largest one-month jump since June 2008. The 12-month increase in the CPI was 5.4% and the largest increase since August 2008. Core CPI (excluding food and energy) rose by its largest 12-month amount since 1991 (+4.5%). Similarly, many components of the index saw greater than expected increases. The food away from home index rose 4.2% over the previous 12 months—the index’s largest annual increase since May 2009. The index for used cars and trucks jumped 45.2% over the past 12 months. This was the index’s largest annual increase ever reported. The inflationary fears from the reported numbers manifested in a selloff of Treasuries, as well as U.S. broad-based indices taking a hit. The Russell 2000 (-1.88%) suffered its largest daily loss in nearly a month.
Wednesday, July 14, ended our Refinitiv Lipper fund-flows week with investors piling into Treasuries. The two-year yield fell 10.20% on the day. The S&P 500 (+0.13%) and DJIA (+0.12%) ended the day slightly in the black. The Producer Price Index (PPI), also published by the DOL, indicated a 1.0% increase in June and a 7.3% jump over the last 12-months—the largest increase since November 2010. Despite the CPI and PPI suggesting more persistent inflation than expected, Fed Chair Jerome Powell, in his semi-annual meeting with Congress, reiterated the same message from the Federal Reserve. Talking about inflation, Powell said:
“Inflation has increased notably and will likely remain elevated in coming months before moderating. Inflation is being temporarily boosted by base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month calculation. In addition, strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind.”
In terms of equity markets, investors will increasingly be looking at how companies will handle input price increase, supply chain disruptions, how they will spend their cash war chest, and handle any potential future corporate tax hikes.
Exchange-traded equity funds recorded $3.1 billion in weekly net inflows. This is the macro-group’s second weekly inflows in the last three despite returning a negative 0.08% on average.
Growth/value large-cap ETFs (+$4.4 billion), sector-healthcare/biotech ETFs (+$1.3 billion), and equity income ETFs (+$668 million) were the three largest attractors of flows in the equity ETF macro-group. Growth/value large-cap ETFs have recorded five straight weeks of inflows and have taken in the top equity ETF spot in three consecutive weeks. Sector-healthcare/biotech ETFs attracted their largest inflows in the past year and their eighth-largest weekly total to date. Equity income ETFs are on a 22-week streak of net inflows, marking a record Q2 inflow (+$13.2 billion).
Growth/value-small-cap ETFs (-$1.9 billion), sector-other ETFs (-$1.2 billion), and sector-financial/banking ETFs (-$250 million) suffered the largest subgroup outflows for the week, possibly signaling the markets positioning themselves for a sooner-than-expected monetary policy tightening. Growth/value small-cap ETFs have gone back-to-back weeks watching more than $1 billion leave their funds. Sector-other ETFs have now realized four consecutive weeks of outflows each of more than $1.2 billion, ending their previous 12-week streak of inflows. Sector-financial/banking ETFs have now reported five straight weeks of weekly estimated net outflows.
Over the past fund-flows week, the two-top equity ETFs in weekly inflows were Health Care Select Sector SPDR ETF (XLV, +$1.5 billion) and Invesco QQQ Trust 1 (QQQ, +$1.4 billion). Meanwhile, the two equity ETFs which reported the largest outflows were iShares Core S&P Small-Cap ETF (IJR, -$910 million) and iShares S&P Small-Cap 600 Value ETF (IJS, -$692 million).
Exchange-traded fixed income funds witnessed $682 million in weekly inflows—the macro-group’s ninth week of inflows over the previous 10. Fixed income ETFs reported a weekly return of negative 0.08% on average—their first week of negative performance in four.
Corporate-investment grade ETFs (+$1.5 billion) and flexible funds ETFs (+421 million) had the largest weekly inflows under the fixed income ETF macro-group. While reporting a weekly return of negative 0.13%, corporate-investment grade ETFs recorded their fourth weekly inflow over the past five weeks. Flexible funds ETFs realized their sixteenth consecutive week of inflows.
The only two subgroups to record weekly outflows of more than $1 million were corporate-high yield ETFs (-$1.6 billion) and government-Treasury ETFs (-$25 million). This week’s outflow for corporate-high yield grade ETFs marks the first outflow in the last four weeks. The subgroup posted a negative 0.11% weekly return, on average. Government-Treasury ETFs logged their first weekly outflow over the past 10 weeks.
iShares: iBoxx $Investment Grade Corporate ETF (LQD, +$1.1 billion) and iShares: TIPS Bond ETF (TIP, +$219 million) attracted the largest amounts of net new money under the fixed income ETF macro-group. On the other hand, SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$856 million) and iShares: iBoxx $High Yield Corporate ETF (HYG, -$571 million) suffered the largest net weekly outflows.
Conventional equity funds (ex-ETFs) were net redeemers for the fourteenth time in 15 weeks (-$2.4 billion). Conventional equity funds posted a weekly return of negative 0.19% on average—their first week of negative performance over the past nine.
Domestic equity funds saw outflows this week (-$3.1 billion), marking the fifty-fifth week of outflows in the last 57. Nondomestic equities attracted a weekly inflow of $657 million—their third weekly net inflow in the past four weeks.
Conventional international equity funds (+$756 million) and equity income funds (+$124 million) realized the largest weekly inflows under the macro-group. Both subgroups reported positive weekly performance on average—0.29% and 0.16%, respectively.
Growth/value large-cap funds (-$1.8 billion) and growth/value small-cap funds (-$871 million) saw the most money depart under conventional equity funds. Growth/value large-cap funds have seen outflows in 54 of their last 55 weeks. Small caps continue to suffer, growth/value small-cap funds now have hit their largest four-week moving average in terms of outflows (-$735 million) since the first week in January.
Conventional fixed income funds realized a weekly inflow of $4.1 billion—their thirtieth week of inflows in 15, despite posting a weekly negative performance of 0.04%.
Conventional corporate investment-grade funds (+$2.9 billion) led the macro-group, recognizing their sixty-fifth consecutive week of inflows. Flexible funds (+$1.0 billion) also saw notable weekly inflows—realizing their thirtieth straight week of inflows.
Government-mortgage funds (-$309 million) and corporate-high quality funds (-$123 million) suffered the two largest weekly outflows under the macro-group. After a weekly performance of negative 0.14% over the week, government-mortgage funds recorded their largest weekly outflows since March. Corporate-high quality funds have witnessed four straight weeks of money leaving their funds.
Municipal bond funds (ex-ETFs) returned positive 0.21%, on average, over the fund-flows week and took in $1.8 billion—their fiftieth week in a row of net inflows. The subgroup has reported positive performance in 13 of the last 15 weeks. Municipal bond funds have only recorded two total weeks of net redemptions this year.
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