by Tom Roseen.
Investors were overall net purchasers of fund assets (including those of conventional funds and ETFs) for the first week in three, injecting a net $15.9 billion—their largest weekly net inflows since June 8, 2022—for the Refinitiv Lipper fund-flows week ended Wednesday, August 17. Fund investors were net purchasers of equity funds (+$7.3 billion), taxable bond funds (+$5.7 billion), and money market funds (+$3.0 billion) but were net redeemers of tax-exempt fixed income funds (-$229 million) for the week.
A cooling of inflationary fears, better-than-expected Q2 corporate earnings, and a modest improvement in consumer sentiment pushed stocks to their longest winning streak since November 2021—as investors took a risk-on approach during the fund-flows week ahead of the release of the Federal Reserve’s July policy setting meeting minutes. On Friday, August 12, the Nasdaq Composite and S&P 500 posted their fourth straight week of gains, marking their longest winning streak since November 5, 2021.
The U.S. broad market indices all posted plus-side returns for the fund-flows week. On the domestic side of the equation, the Dow Jones Industrial Average Price Only Index (+2.01% for the flows week and -6.49% YTD) posted the strongest returns of the other broadly followed indices. It was followed by the S&P 500 Price Only Index (+1.52% and -10.33%, respectively). The Nasdaq Composite Price Only Index (+0.65% and -17.30%, respectively) posted the weakest returns. Overseas, the Nikkei 225 Price Only Index (+2.45% and -13.82%, respectively) posted the strongest plus-side returns of the other often-followed broad-based international indices, while the Xetra DAX Total Return Index (-2.40% and -23.34%, respectively) was the group laggard.
For the flows week, the S&P/LSTA Leverage Loan Index (+0.40% for the week and -0.54% YTD) posted stronger returns than the Bloomberg Municipal Bond Index (+0.92% and -7.49%, respectively) and the Bloomberg U.S. Aggregate Bond Index (-0.52% and -9.25%, respectively).
On Thursday, August 11, U.S. indices ended mixed as investors took their collective foot off the gas pedal, even after learning that the July producer-price index fell 0.5% compared with analyst expectations of a 0.2% rise. Encouraging CPI and PPI reports during the week helped send stocks higher, with the Nasdaq and the Dow exiting bear-market and correction territory, respectively. Investors hoped that the recent news would allow the Fed to hike interest rates less aggressively, but many pundits took a breather ahead of the release of the July Federal Open Market Committee (FOMC) meeting minutes. In other news, the Department of Labor reported that the number of first-time jobless claims rose 14,000 for the week prior to 262,000. The 10-year Treasury yield rose nine basis points (bps), closing the day out at 2.87%, while the two-year Treasury yield remained unchanged at 3.23%.
U.S. stocks rallied on Friday, August 12, with the S&P 500 and DJIA chalking up their longest weekly winning streak since November 2021 on news of easing inflation and improving consumer sentiment. The University of Michigan’s preliminary survey of consumer sentiment showed its sentiment index rose to 55.1 in August, from a reading of 51.5 in July. Investors were clearly in a risk-on mood but appeared to ignore Richmond Federal Reserve President Thomas Barkins’ comment that he wants to keep hiking interest rates until there is a sustained period of inflation being under control. Nonetheless, the 10-year Treasury yield declined three bps to close at 2.84%. Front-month crude oil futures prices fell 2.4% on the day—closing at $92.09/bbl—but posted a weekly gain of 3.5%.
Shrugging off disappointing economic news out of China, investors pushed the Dow to its sixth day of plus-side performance on Monday, August 15. The DJIA chalked up its longest winning streak since the week ended May 15 as hopes for a ‘soft landing’ intensified after the release of inflation reports the week before and on news of front-month crude oil future prices slipping 2.9% on the day to $89.41/bbl as slower demand from China weighed on the energy sector. The two- and 10-year Treasury yield spread remained inverted at 41 bps, with the two- and 10-year yields closing out the day at 3.20% and 2.79%, respectively.
The DJIA rose for the fifth consecutive trading day on Tuesday, August 16, after better-than-expected Q2 corporate earnings reports from retailers pushed the Dow and S&P 500 to their highest levels in three months. Both Walmart and Home Depot reported strong second-quarter earnings reports and confirmed their full-year outlooks, beating analyst expectations and fueling the rally. In other news, U.S. industrial production rose 0.6% in July, beating analyst expectations of a 0.3% increase. The 10-year Treasury yield rose three bps to end the day at 2.82%. Front-month crude oil futures finished down 3.2% to $86.53/bbl.
U.S. stocks ended lower, on Wednesday, August 17, as investors assessed the implications from the FOMC July meeting minutes, which indicated the policymakers were prepared to keep hiking rates to ward off inflation before it becomes too entrenched but were wary of overshooting the mark. In other news, July U.S. retail sales were flat, compared to analyst expectations for a 0.1% gain. The 10-year Treasury yield rose seven bps to 2.89% and the two- and 10-year Treasury yield spread remained inverted (39 bps) but eased slightly, with the two-year Treasury yield closing the day out at 3.28%.
Exchange-Traded Equity Funds
Equity ETFs witnessed their second consecutive week of net inflows, taking in $11.8 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$12.5 billion), injecting money also for the second week in a row, while nondomestic equity ETFs witnessed their second straight week of net outflows, handing back $728 million this past week. Large-cap ETFs (+$6.8 billion) witnessed the largest net inflows of the equity ETF macro-groups for the flows week, followed by small-cap ETFs (+$1.7 billion) and sector-financial/banking ETFs (+$1.4 billion). Meanwhile, international equity ETFs (-$795 million) suffered the largest net outflows, bettered by sector-healthcare/biotechnology ETFs (-$299 million).
SPDR S&P 500 ETF (SPY, +$1.4 billion) and iShares Core S&P 500 ETF (IVV, +$1.2 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, JPMorgan BetaBuilders Europe ETF (BBEU, -$718 million) experienced the largest individual net redemptions and SPDR Gold ETF (GLD, -$478 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the eighth consecutive week, taxable fixed income ETFs witnessed net inflows, taking in $4.3 billion this week. APs were net purchasers of corporate investment-grade debt ETFs (+$2.6 billion), corporate high yield ETFs (+$1.4 billion), and flexible ETFs (+$851 million), while being net redeemers of government-Treasury ETFs (-$1.2 billion) and government-Treasury & mortgage ETFs (-$20 million).
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$1.1 billion), iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$824 million), and SPDR Bloomberg High Yield Bond ETF (JNK, +$693 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, -$677 million) and iShares 1-3 Year Treasury Bond ETF (SHY, -$569 million) handed back the largest individual net redemptions for the week.
For the second week running, municipal bond ETFs witnessed net outflows, handing back $279 million this week. DFA National Muni Bond ETF (DFNM, +$65 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (MUB, -$311 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-eighth week in a row—redeeming $4.4 billion—with the macro-group recording an average market return of 0.76% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $3.3 billion, also witnessed their twenty-eighth consecutive week of net outflows while chalking up a 1.05% market return on average for the fund-flows week. Nondomestic equity funds—posting a 0.05% weekly gain on average—observed their nineteenth straight week of net outflows, handing back $1.1 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$2.9 billion) and mid-cap funds (-$148 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$646 million) and global equity funds (-$504 million) for the week.
Conventional Fixed Income Funds
For the second week in three, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $1.5 billion this past week—while posting a 0.07% market loss on average for the fund-flows week. Corporate investment-grade debt funds (+$912 million) attracted the largest net inflows for the flows week, followed by flexible funds (+$564 million) and government-Treasury funds (+$117 million), while international & global debt funds (-$218 million) suffered the largest net redemptions for the week.
The municipal bond funds group posted a 0.70% loss on average during the fund-flows week (their second consecutive week of negative performance) but witnessed minute net inflows for the second week in three, attracting just $50 million this week. High Yield Municipal Debt Funds (+$264 million) and Intermediate Municipal Debt Funds (+$26 million) experienced the largest net inflows of the group, while Short Municipal Debt Funds (-$210 million) and General & Insured Municipal Debt Funds (-$52 million) suffered the largest net redemptions for the week. Year to date, the municipal bond funds macro-group handed back $92.9 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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