by Jack Fischer.
Today at the annual Kansas City Federal Reserve symposium in Jackson Hole, Wyoming, Fed Chair Jerome Powell reiterated the central bank’s stance of continuing to increase interest rates until inflation is back below the Fed’s goal of 2%. In his speech, Powell made clear that Fed actions may cause some economic pain.
“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” Powell said. “Reducing inflation is likely to require a sustained period of below trend growth.”
The Fed increased the federal-funds rate by 75 basis points (bps) in each of its last two meetings, representing the quickest pace of increases since the early 1990s. Their next meeting takes place September 20-21, where they are expected to raise rates by at least 50 bps.
Today the Bureau of Economic Analysis released the Personal Income and Outlays, July 2022 report, which showed personal consumption expenditures (PCE) decreased month over month (-0.1%), while core-PCE—excluding food and energy—increased 0.1% in July. PCE increased 6.3% year over year and core-PCE—the Fed’s preferred gauge of inflation—increased 4.6% from last year. Core-PCE came in below economic expectations and was down from June’s 4.8% annual increase.
This week we dive into two Lipper equity classifications that are deeply affected by the movement of interest rates—Lipper Science & Technology Funds and Lipper Financial Services Funds. Of the 106 equity and mixed asset Lipper classifications, Science & Technology Funds (-$1.4 billion) suffered the largest weekly outflows, while Financial Services Funds (+$1.9 billion) attracted the most amount of new capital.
While both classifications have seen multiple consecutive monthly outflows, Science & Technology Funds are on pace for their fifth straight monthly outflows. They have not had such a sustained period of outflows since the end of 2018. Rising rate environments are troublesome for debt-ridden balance sheets that software and technology companies tend to have. This past fund-flows week, the classification recorded its sixth largest weekly outflows on record.
Lipper Financial Services Funds are on pace to end their six months stretch of outflows with what could be their largest monthly intake since the start of 2021. Financial issues, which tend to see increased profits as interest rates increase, are also seeing increased interest from investors. Financial Services Funds have attracted inflows of more than $1.0 billion for two consecutive weeks for the first time since the start of the year. This past week the Lipper classification pulled in $1.9 billion, marking the second-largest weekly inflows this year.
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