by Tom Roseen.
Investors were overall net redeemers of fund assets (including those of conventional funds and ETFs) for the first week in three, removing a net $30.2 billion—their largest weekly net outflows since June 15, 2022—for the Refinitiv Lipper fund-flows week ended Wednesday, August 31. Fund investors were net redeemers of equity funds (-$10.6 billion), taxable bond funds (-$9.2 billion), money market funds (-$6.9 billion), and tax-exempt fixed income funds (-$3.4 billion) for the week.
A strong commitment by the Federal Reserve Board to fight inflation at its annual Jackson Hole symposium and low end-of-summer trading volumes led to some very large market swings during the fund-flows week. On Thursday, August 25, the Dow and S&P 500 booked their strongest returns in two weeks, rising 1.0% and 1.4%, respectively, on the day. While on Friday, August 26, both indices suffered the largest declines (-3.0% and -3.4% on the day), since May 18 and June 13, respectively. Investors evaluated the potential fallout from Federal Reserve Chair Jerome Powell’s hawkish remarks, stating that the central bank will continue its fight against inflation “until the job is done”—driving inflation back to its 2% target—a much more hawkish stance than some pundits had thought.
The broad market indices suffered large losses for the fund-flows week. On the domestic side of the equation, the Dow Jones Industrial Average Price Only Index (-4.42% for the flows week) mitigated losses slightly better than the other broadly followed indices. It was followed by the S&P 500 Price Only Index (-4.49%). The Nasdaq Composite Price Only Index (-4.95%) posted the weakest returns. Overseas, the Shanghai Composite Index (-0.82%) did the best job of mitigating losses of the other often-followed broad-based international indices, while the FTSE 100 Price Only Index (-4.03%) was the group laggard.
For the fund-flows week, the S&P/LSTA Leverage Loan Index (+0.00% for the week) just managed to stay in the black and outshined the Bloomberg Municipal Bond Index (-0.29%) and the Bloomberg U.S. Aggregate Bond Index (-0.37%).
On Thursday, August 25, the DJIA and the S&P 500 posted their strongest performance in two weeks ahead of Fed Chair Powell’s highly anticipated Jackson Hole speech. The rise in stocks was attributed to seasonally low intraday trading volumes, upward revisions to negative Q2 gross domestic product readings for both the U.S. and Germany, and news about fiscal stimulus from China. In other news, the Department of Labor reported that the number of first-time jobless claims fell by 2,000 for the week prior to 243,000—signaling continued strength in the labor market. The 10-year Treasury yield declined eight basis point (bps), closing the day out at 3.03%, while the two-year Treasury yield fell one bp to 3.35%.
U.S. stocks got slammed on Friday, August 26, with the DJIA closing down 1,008.38 points on the day—its largest one-day percentage drop since May 18 after Federal Reserve Board Chair Powell made it clear his intent to bring inflation under control, even if that means causing near-term economic pain for households and businesses. Tech stocks suffered the largest declines, with the Nasdaq falling 3.9% on the day—its largest percentage decline since June 16. Ahead of Powell’s remarks, July’s core personal-consumption-expenditures index, which excludes food and energy prices, was released, showing a 0.1% increase for the month and an unexpected decline to 4.6% in the year-over-year rate from 4.8% in June. Nonetheless, the 10-year Treasury yield rose one bp to close at 3.04%. Front-month crude oil futures prices rose 0.6% on the day—closing at $93.06/barrel (bbl)—and posted a weekly gain of 2.9%.
Stocks suffered back-to-back losses on Monday, August 29, as investors weighed the implications of the Fed’s vow to not waiver in its fight against inflation. Market declines were limited, but investors remained wary of making a bet either way ahead of the nonfarm payrolls report due out at the end of the week, with analysts expecting 318,000 new jobs being added to the economy for August. The two- and 10-year Treasury yield spread remained inverted at 30 bps, with the two- and 10-year yields closing out the day at 3.42% and 3.12%, respectively.
The DJIA declined for the third consecutive trading day on Tuesday, August 30, after data showed that U.S. job openings rose to 11.2 million in July, up from 11.0 million in June. Lingering worries about more aggressive interest rate hikes accompanied by thin end-of-summer trading volumes led to continued volatility in the markets. The 10-year Treasury yield declined one bp to end the day at 3.11%. Front-month crude oil futures finished down 5.5% on the day to $91.64/bbl.
U.S. stocks ended lower for the fourth straight day, on Wednesday, August 31, with the major indices losing about 4% for the month of August as investors continued their handwringing over the possibilities of a looming recession after Powell’s speech earlier in the fund-flows week. In other news, according to payroll processing firm ADP, U.S. companies slowed their pace of hiring in August to 132,000 for the month from a 268,000 gain in July. The 10-year Treasury yield rose four bps to 3.15% and the two- and 10-year Treasury yield spread remained inverted (30 bps) but eased 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 first week of net outflows in four, handing back $6.0 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 (-$5.9 billion), withdrawing money also for the first week in four, while nondomestic equity ETFs witnessed their fourth straight week of net outflows, however, handing back just $34 million this past week. Equity income ETFs (+$1.3 billion) witnessed the largest net inflows of the equity ETF macro-groups for the flows week, followed by sector-financial/banking ETFs (+$974 million) and convertible & preferred stock ETFs (+$119 million). Meanwhile, large-cap ETFs (-$6.3 billion) suffered the largest net outflows, bettered by the commodities heavy sector-other ETFs (-$788 million).
Financial Select Sector SPDR Fund (XLF, +$978 million) and JPMorgan Equity Premium Income ETF (JEPI, +$457 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, -$4.8 billion) experienced the largest individual net redemptions and Invesco QQQ Trust 1 (QQQ, -$1.1 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the ninth week in 10, taxable fixed income ETFs witnessed net inflows, however, taking in just $688 million this week. APs were net purchasers of government-Treasury ETFs (+$3.2 billion), corporate high-quality ETFs (+$163 million), and government-mortgages ETFs (+$37 million), while being net redeemers of corporate high-yield ETFs (-$2.2 billion) and corporate investment-grade debt ETFs (-$263 million).
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$1.1 billion), iShares 20+ Year Treasury Bond ETF (TLT, +$1.0 billion), and JPMorgan Ultra-Short Income ETF (JPST, +$696 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares iBoxx $ High Yield Corporate Bond ETF (HYG, -$1.2 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$723 million) handed back the largest individual net redemptions for the week.
For the fourth week running, municipal bond ETFs witnessed net outflows, handing back $311 million this week. DFA National Muni Bond ETF (DFNM, +$57 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (MUB, -$307 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 thirtieth week in a row—redeeming $4.7 billion—with the macro-group recording an average market decline of 3.70% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $3.6 billion, also witnessed their thirtieth consecutive week of net outflows while chalking up a 4.11% market loss on average for the fund-flows week. Nondomestic equity funds—posting a 2.68% weekly performance decline on average—observed their twenty-first 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 (-$2.3 billion) and mid-cap funds (-$760 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$682 million) and global equity funds (-$389 million) for the week.
Conventional Fixed Income Funds
For the second week in three, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $9.9 billion this past week—while posting a 0.97% market loss on average for the fund-flows week. None of the fixed income fund macro-groups attracted net new money for the week. Corporate investment-grade debt funds (-$4.4 billion) suffered the largest net redemptions for the fund-flows week, bettered by corporate high yield funds (-$2.8 million) and flexible funds (-$1.2 billion).
The municipal bond funds group posted a 0.48% loss on average during the fund-flows week (their fourth consecutive week of negative performance) and witnessed net outflows for the second week in a row, handing back $3.1 billion this week—their largest weekly net redemption since June 15, 2022. High Yield Municipal Debt Funds (-$1.2 billion), General & Insured Municipal Debt Funds (-$847 million), and Intermediate Municipal Debt Funds (-$367 million) suffered the largest net redemptions for the week. None of the classifications in this macro-group witnessed net inflows for the week.
Year to date, the municipal bond funds macro-group handed back $96.1 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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