by Tom Roseen.
Investors were overall net redeemers of fund assets (including those of conventional funds and ETFs) for the second week in a row, removing a net $17.5 billion for the Refinitiv Lipper fund-flows week ended Wednesday, September 7. Fund investors were net redeemers of equity funds (-$12.9 billion), money market funds (-$2.6 billion), tax-exempt fixed income funds (-$1.1 billion), and taxable bond funds (-$913 million) for the week.
Despite rising interest rates, a new COVID-related citywide lockdown in Chengdu, China, and lingering concerns of a European energy crisis, markets finished mixed after the Dow and S&P 500 posted their best one-day returns in almost a month on the last trading day of the fund-flows week. On Wednesday, September 7, the Dow and S&P 500 booked their strongest gains since August 10, 2022, rising 1.40% and 1.83%, respectively, on the day. Investors appeared to shake off the collective hawkish comments by Federal Reserve Board members that hinted to the possibility of a 75-basis-points (bps) rate hike later this month, which according to the CME FedWatch tool was already largely priced in by traders on Tuesday.
On the domestic side of the equation, the S&P 500 Price Only Index (+0.63% for the flows week) outshined the other broadly followed indices for the fund-flows week. It was followed by the Dow Jones Industrial Average Price Only Index (+0.22%). The Russell 2000 Price Only Index (-0.66%) posted the weakest returns. Overseas, the Shanghai Composite Index (+0.26%) posted the only plus-side returns of the other often-followed broad-based international indices, while the Nikkei 225 Price Only Index (-6.32%) and the FTSE 100 Price Only Index (-2.09%) were the group laggards.
For the fund-flows week, the Morningstar LSTA U.S. Leveraged Loan Index (-0.25% for the week) mitigated losses better than the Bloomberg U.S. Aggregate Bond Index (-0.55%) and the Bloomberg Municipal Bond Index (-0.88%).
On Thursday, September 1, the DJIA and the S&P 500 finished higher, snapping a four-day losing streak ahead of the August jobs report, due out on Friday. Investors appeared to shrug off news that China issued another COVID-related lockdown in Chengdu, which will impact some 21 million residents for at least four days and could add to ongoing economic concerns. Investors instead focused on a report from the Department of Labor which showed that the number of first-time jobless claims fell to its lowest level in nine weeks. The 10-year Treasury yield surged 11 bps, closing the day out at 3.26%, while the two-year Treasury yield rose six bps to 3.51%.
U.S. stocks closed significantly lower on Friday, September 2, ahead of the U.S. Labor Day holiday three-day weekend, with the Nasdaq suffering its longest losing streak since August 2019, even after the Department of Labor announced the U.S. economy had added 315,000 jobs in August, in line with analyst expectations of 318,000 jobs. Shrugging off the Goldilocks’ nonfarm payrolls report, investors focused on news that Russian energy giant Gazprom will not reopen a natural gas pipeline to Europe. The 10-year Treasury yield declined six bps to close at 3.20%.
The U.S. markets were closed on Monday, September 5, in observation of the Labor Day holiday. However, stocks continued their slide on Tuesday, September 6, with the Nasdaq suffering its seventh consecutive day of losses—its longest losing streak in six years after investors reassessed the possible fallout from Europe’s energy crisis and focused on the Fed’s commitment to fight inflation by aggressively hiking its lending rate—which has been a headwind for equities. Nonetheless, the Institute for Supply Management provided some upbeat economic news saying its services index rose to 56.9% in August from 56.7% in July—its strongest level since April and beating analyst expectations of 55.5%. The 10-year Treasury yield rose 13 bps to end the day at 3.33%, while the two-year Treasury rose 10 bps to 3.50%, pushing the two- and 10-year Treasury spread to negative 18 bps (its smallest negative value since July 28).
U.S. stocks posted their best one-day returns in almost a month on Wednesday, September 7, even after hearing Federal Reserve Vice Chair Lael Brainard state that the Fed will need to raise its key lending rate further and keep rates at high levels for some time to “provide confidence that inflation is moving down to target.” In other news, the Bank of Canada hiked its key policy rate by 75 bps to 3.25% in its bid to fight inflation. The 10-year Treasury yield declined six bps to 3.27% and the two- and 10-year Treasury yield spread remained inverted (18 bps) but rose slightly from the day before, with the two-year Treasury yield closing the day out at 3.45%.
Exchange-Traded Equity Funds
Equity ETFs witnessed their second straight week of net outflows, handing back $7.8 billion for the most recent fund-flows week—its largest weekly net outflows since June 15. Authorized participants (APs) were net sellers of domestic equity ETFs (-$6.2 billion), withdrawing money also for the second week in a row, while nondomestic equity ETFs witnessed their fifth straight week of net outflows, handing back $1.6 billion this past week. Equity income ETFs (+$881 million) witnessed the only net inflows of the equity ETF macro-groups for the fund-flows week. Meanwhile, large-cap ETFs (-$2.6 billion) suffered the largest net outflows, bettered by the commodities heavy sector-other ETFs (-$1.7 billion).
ProShares UltraPro QQQ (TQQQ, +$413 million) and Direxion Daily Semiconductor Bull 3x Shares (SOXL, +$316 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, -$1.5 billion) experienced the largest individual net redemptions and Financial Select Sector SPDR ETF (XLF, -$1.1 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the second consecutive week, taxable fixed income ETFs witnessed net inflows, however, taking in just $577 million this week. APs were net purchasers of government-Treasury ETFs (+$4.5 billion), while being net redeemers of corporate high-yield ETFs (-$1.6 billion), flexible ETFs (-$1.0 billion), and corporate investment-grade debt ETFs (-$837 million).
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$2.3 billion), iShares Short Treasury Bond ETF (SHV, +$2.1 billion), and WisdomTree Floating Rate Treasury ETF (USFR, +$312 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg High Yield Bond ETF (JNK, -$923 million) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$616 million) handed back the largest individual net redemptions for the week.
For the fifth week running, municipal bond ETFs witnessed net outflows, handing back $189 million this week. iShares Short-Term National Muni Bond ETF (SUB, +$66 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (MUB, -$177 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 thirty-first week in a row—redeeming $5.1 billion—with the macro-group recording a flat average market return of 0.00% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $4.0 billion, also witnessed their thirty-first consecutive week of net outflows while chalking up a 0.43% market gain on average for the fund-flows week. Nondomestic equity funds—posting a 1.03% weekly performance decline on average—observed their twenty-second 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 (-$3.2 billion) and mid-cap funds (-$327 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$932 million) and global equity funds (-$123 million) for the week.
Conventional Fixed Income Funds
For the third consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $1.5 billion this past week—while posting a 0.31% market loss on average for the fund-flows week. Only the government-Treasury & mortgage funds macro-groups attracted net new money for the week but took in only $47 million. Corporate high yield funds (-$715 million) suffered the largest net redemptions for the fund-flows week, bettered by balanced funds (-$263 million) and international & global debt funds (-$195 million).
The municipal bond funds group posted a 1.04% loss on average during the fund-flows week (their fifth consecutive week of negative performance) and witnessed net outflows for the third straight week, handing back $901 million this week. High Yield Municipal Debt Funds (-$483 billion) and Short Municipal Debt Funds (-$156 million) suffered the largest net redemptions for the week.
Year to date, the municipal bond funds macro-group handed back $96.9 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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