by Tom Roseen.
Investors were overall net redeemers of fund assets (including those of conventional funds and ETFs) for the first week in three, withdrawing a net $7.2 billion for the Refinitiv Lipper fund-flows week ended Wednesday, July 20. Fund investors were net purchasers of money market funds (+$5.6 billion) but were net redeemers of equity funds (-$10.4 billion), taxable bond funds (-$1.6 billion), and tax-exempt fixed income funds (-$699 million) for the week.
A better-than-expected start to the Q2 earnings season and retail sales report, and a quasi-dovish comment by Atlanta’s Federal Reserve Board President ahead of the Fed’s policy-setting meeting next week provided a bit of market optimism for the fund-flows week. On Tuesday, July 19, the Dow Jones Industrial Average, rising 2.43% on the day, posted its strongest one-day return since June 24 and the Russell 2000, rising 3.50%, experienced its best daily return since January 6, 2021.
The broad market indices all posted plus-side returns for the fund-flows week. On the domestic side of the equation, the Russell 2000 (+5.90% for the flows week and -18.59% YTD) posted the strongest returns of the other broadly followed U.S indices. It was followed by the Nasdaq Composite Price Only Index (+5.78% and -23.95%, respectively). The Dow Jones Industrial Average Price Only Index (+3.58% and -12.28%, respectively) posted the weakest returns. Overseas, the Xetra DAX Total Return Index (+5.18% and -24.91%, respectively) posted the strongest plus-side returns of the other often-followed broad-based international indices, while the Shanghai Composite (+0.16% and -14.31%, respectively) was the relative laggard.
For the flows week, the S&P/LSTA Leverage Loan Index (+1.19% for the week and -3.27% YTD) posted stronger returns than the Bloomberg Municipal Bond Index (+0.08% and -7.59%, respectively) and the Bloomberg U.S. Aggregate Bond Index (-0.41% and -10.17%, respectively).
On Thursday, July 14, the U.S indices suffered their fifth straight day of losses as investors evaluated disappointing Q2 earnings reports from the likes of JPMorgan and Morgan Stanley and the likelihood of a 100-basis point (bps) hike in the Fed-funds rate next week. Along with the report last week that showed the June consumer-price index jumped to a near 41-year high, with U.S. inflation rising 9.1% year over year, the release of June’s producer-price index this week showed a 1.1% rise, pushing the one-year gain in wholesale prices to 11.3%. In other news, the Department of Labor reported that the number of first-time jobless claims rose 9,000 for the week prior to 244,000—its highest level since November 2021. The 10-year Treasury yield rose five bps, closing the day out at 2.96%, while the two-year Treasury yield rose two bps to 3.15%.
U.S. stocks rallied on Friday, July 15, with the S&P 500 and DJIA snapping a five-day losing streak on news of a better-than-expected June retail sales report and a rise in consumer sentiment. The U.S. Census Bureau reported June U.S. retail sales rose 1.0%, beating analysts’ expectations. And the University of Michigan’s survey of consumer sentiment showed its sentiment index rose to 51.1 in July, from a reading of 50 in June. Easing some concerns about a 100-bps interest hike next week, Atlanta Fed President Raphael Bostic said that moving rates “too dramatically” could undermine the U.S. economy, according to a Reuters report. The 10-year Treasury yield declined three bps to close at 2.93%. Front-month crude oil futures prices rose 1.9% on the day—closing at $97.59/bbl—but posted a weekly decline of 6.9%.
The U.S. market tanked on Monday, July 18, after investors learned that Apple Inc. plans on slowing its hiring and spending growth in anticipation of a possible economic downturn. Nonetheless, ahead of the Fed Open Markets Committee (FOMC) meeting next week, investors pushed the 10-year Treasury yield up by three bps to close at 2.96%. The two- and 10-year Treasury yield spread remain inverted at 19 bps, with the two-year yield closing out the day at 3.15%—fanning concerns of a nascent economic slowdown. Front-month crude oil futures rose $5.01 on the day to close at $102.60/bbl.
Stocks rose strongly on Tuesday, July 19, with the Russell 2000 Index witnessing its strongest one-day gain since January 6, 2021, as Q2 corporate earnings reports haven’t been as dour as many had feared. According to Refinitiv’s Proprietary Research team, of the 91 companies in the S&P 500 that have reported earnings thus far for Q2 2022, 78% beat analyst expectations. This compares to a long-term average of 66%. In other news, the European Central Bank is said to be planning to hike its key lending rate by 50 bps later this week, rather than the 25 bps it initially signaled. The 10-year Treasury yield rose an additional five bps to end the day at 3.01%. Front-month crude oil futures finished up 1.58% to $104.22/bbl.
U.S. stocks finished higher, on Wednesday, July 20, after Netflix reported it lost fewer subscribers than previously anticipated for Q2, boosting investor confidence in upcoming tech earnings reports. Investors appeared to shrug off economic data that showed existing home sales fell 5.4% to a seasonally adjusted 5.12 million in June—its weakest level since June 2020. The 10-year Treasury yield rose three bps to 3.04% and the two- and 10-year Treasury yield spread inverted further (21 bps), with the two-year Treasury yield closing the day out at 3.25%.
Exchange-Traded Equity Funds
Equity ETFs witnessed their sixth consecutive week of net outflows, handing back $2.7 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$3.4 billion), withdrawing money for the fourth week in a row, while nondomestic equity ETFs witnessed their fourth straight week of net inflows, taking in $736 million this past week. Once again, the commodities focused, sector-other ETFs (-$2.1 billion) suffered the largest net outflows, bettered by small-cap ETFs (-$1.3 billion). Meanwhile, sector-healthcare/biotechnology ETFs (+$958 million) witnessed the largest net inflows of the equity ETF macro-groups for the flows week, followed by international equity ETFs (+$667 million) and equity income ETFs (+$646 million).
Health Care Select Sector SPDR ETF (XLV, +$642 million) and SPDR Portfolio S&P 500 Growth ETF (SPYG, +$557 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, -$1.3 billion) experienced the largest individual net redemptions and SPDR Gold ETF (GLD, -$765 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the fourth consecutive week, taxable fixed income ETFs witnessed net inflows, taking in $4.6 billion this week. APs were net purchasers of government-Treasury ETFs (+$3.6 billion), corporate investment-grade debt ETFs (+$697 million), and flexible ETFs (+$672 million), while being net redeemers of corporate high-yield debt ETFs (-$316 million) and government-mortgage ETFs (-$166 million). iShares U.S. Treasury Bond ETF (GOVT, +$3.0 billion), iShares 20+ Year Treasury Bond ETF (TLT, +$1.0 billion), and JPMorgan Ultra-Short Income ETF (JPST, +$551 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, -$2.2 billion) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$759 million) handed back the largest individual net redemptions for the week.
For the fourth week in five, municipal bond ETFs witnessed net inflows, but with investors injecting a paltry $32 million this week. iShares National Muni Bond ETF (MUB, +$129 million) witnessed the largest draw of net new money of the municipal bond ETFs, while JPMorgan Ultra-Short Municipal Income ETF (JMST, -$266 million) experienced the largest net redemptions in the subgroup for the week.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the twenty-fourth week in a row—redeeming $7.7 billion—with the macro-group recording an average market return of 4.00% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $6.1 billion, also witnessed their twenty-fourth consecutive week of net outflows while chalking up a 4.40% market return on average for the fund-flows week. Nondomestic equity funds—posting a 3.04% weekly gain on average—observed their fifteenth straight week of net outflows, handing back $1.6 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$3.6 billion), small-cap funds (-$1.2 billion), and mid-cap funds (-$504 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$1.4 billion) and global equity funds (-$260 million) for the week.
Conventional Fixed Income Funds
For the twenty-sixth week in a row, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $6.3 billion this past week—while posting a 0.60% market gain on average for the fund-flows week. Flexible funds witnessed the only net inflows of the group, attracting a net $1.1 billion. Corporate investment-grade debt funds (-$4.0 billion) suffered the largest net redemptions for the week, bettered by international & global debt funds (-$1.3 billion) and government-Treasury & mortgage funds (-$691 million).
The municipal bond funds group posted a 0.10% gain on average during the fund-flows week (their fifth consecutive week of plus-side performance) but suffered net redemptions for the sixth week in seven, handing back $731 million this week. General & Insured Municipal Debt Funds (+$123 million) and Maryland Municipal Debt Funds (+$5 million) experienced the largest net inflows of the group, while Short Municipal Debt Funds (-$396 million) and Intermediate Municipal Debt Funds (-$218 million) suffered the largest net redemptions for the week. Year to date, the municipal bond funds macro-group handed back $93.5 billion—witnessing the largest net redemption thus far of any full year dating back to 1992 when Lipper began calculating weekly estimated net flows.
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