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, withdrawing a net $35.4 billion for the Refinitiv Lipper fund-flows week ended Wednesday, October 5. Fund investors were net redeemers of money market funds (-$24.7 billion), equity funds (-$4.5 billion), taxable bond funds (-$4.1 billion), and tax-exempt fixed income funds (-$2.1 billion) for the week.
After U.S. stocks posted their worst September returns since 2011, the Dow Jones Industrial Average and the S&P 500 indices posted their strongest two-day percentage gains since April 7, 2020, during the fund-flows week. The Dow chalked up its strongest start to a quarter since 1938, according to Dow Jones Market Data. On Friday, September 30, the Dow fell 500 points as stocks locked in their third consecutive quarterly loss—losing 6.66% for Q3. Nonetheless, in a little market-schadenfreude dynamics, on hopes that central banks will pivot to a more dovish stance, investors pushed global markets higher.
On the domestic side of the equation, the Russell 2000 Price Only Index (+2.77%) outshined the other broadly followed indices for the fund-flows week. It was followed by the Dow Jones Industrial Average Price Only Index (+1.99%). The Nasdaq Composite Price Only Index (+0.88%) posted the weakest returns. Overseas, the FTSE 100 Price Only Index (+5.33%) posted the strongest plus-side returns of the other often-followed broad-based international indices, while the Shanghai Composite Price Only Index (+1.50%) and the Nikkei 225 Price Only Index (+3.49%) were the group relative laggards.
For the fund-flows week, the Bloomberg Municipal Bond Index (+0.79%) outpaced the Morningstar LSTA U.S. Leveraged Loan Index (+0.44%) and the Bloomberg U.S. Aggregate Bond Index (-0.22%).
On Thursday, September 29, the U.S. markets plunged on news of an Apple (AAPL) downgrade by a Bank of America analyst and after a batch of economic reports reinforced expectations the Federal Reserve will continue its aggressive rate hikes. Investors appeared to ignore the latest update to Q2 GDP numbers, which showed the U.S. economy cooled to an annualized pace of 0.6%, and instead focused on a report from the Department of Labor which showed that the number of first-time jobless claims fell by 16,000 to 193,000 for the week prior—its lowest since April. The 10-year Treasury yield rose four bps, closing the day out at 3.76%, while the two-year Treasury yield rose nine bps to 4.16%—further pressuring stocks and bonds.
U.S. stocks closed significantly lower on Friday, September 30, after the August personal consumption expenditure inflation index showed core consumer inflation—which excludes food and energy prices— rose by 0.6%, more than analyst forecasts of a 0.5% rise, with stocks posting their lowest closing values since 2020 and cementing their third consecutive quarterly decline. Fanning the flames, eurozone data showed inflation rose at a record pace in September. The 10-year Treasury yield rose seven bps to close at 3.83%.
The Dow witnessed its largest one-day gain (+2.7%) since June 24 on Monday, October 3, as investors assessed the possibility of the Fed being pressured to pivot away from its hawkish monetary policy after the Institute of Supply Management said its manufacturing index fell to a 28-month low of 50.9% in September, lower than the 52% reading expected by analysts. Adding to the possible pressures, the United Nations called for the Fed and other central banks to stop interest rate hikes to avoid causing significant harm to developing countries by pushing the global economy into a recession. The 10-year Treasury yield declined 16 bps to close at 3.67%.
Stocks continued their ascent on Tuesday, October 4, with the S&P 500 and the Dow posting their largest two-day percentage gain since April 17, 2020, as investors scooped up perceived oversold issues and considered the growing assumption that central banks would become more dovish. Lending support to those hopes, the Reserve Bank of Australia delivered a smaller-than-expected 25-bps interest rate hike. In other news, U.S. job openings fell to 10.1 million in August—its lowest level since last fall. The 10-year Treasury yield declined five bps to end the day at 3.62%, while the two-year Treasury declined two bps to 4.10%, pushing the two- and 10-year Treasury spread to negative 48 bps (its largest negative value since September 23).
U.S. stocks snapped their two-day winning streak on Wednesday, October 5, after data showed a steady growth in private-sector jobs in September and OPEC+ announced its largest cut in oil production since April 2020. According to ADP, U.S. private sector employers added 208,000 jobs in September, beating analysts’ expectations of 200,000. In addition, ADP reported annual pay was up 7.8%, further supporting the Fed’s hawkish stance and weighing on equity issues. The 10-year Treasury yield rose 14 bps to 3.76%. Front-month crude oil future prices rose 1.4% to settle at $87.76/barrel after the OPEC+ group said it is reducing its combined crude oil production levels by two million barrels per day starting next month.
Exchange-Traded Equity Funds
Equity ETFs witnessed their second week of net inflows in three, taking in $6.2 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$4.0 billion), injecting money also for the second week in three, while nondomestic equity ETFs witnessed their second straight week of net inflows, attracting $2.2 billion this past week. Large-cap ETFs (+$2.7 billion) witnessed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by equity income ETFs (+$1.6 billion) and sector-technology ETFs (+$470 million). Meanwhile, sector-healthcare/biotechnology ETFs (-$689 million) suffered the largest net outflows, bettered by the mid-cap ETFs (-$251 billion).
SPDR S&P 500 ETF (SPY, +$1.6 billion) and iShares MSCI Emerging Markets Min Vol Factor ETF (EEMV, +$1.2 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Invesco QQQ Trust 1 (QQQ, -$1.8 billion) experienced the largest individual net redemptions and iShares Core S&P Total US Stock Market ETF (ITOT, -$1.2 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in three, taxable fixed income ETFs witnessed net inflows, taking in $7.7 billion this week—their largest weekly net inflows since December 8, 2021. APs were net purchasers of government-Treasury ETFs (+$3.5 billion), corporate investment-grade debt ETFs (-$3.0 billion), and corporate high-yield ETFs (+$2.5 billion), while being net redeemers of flexible ETFs (-$1.1 billion).
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, +$3.0 billion), iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.9 billion), and SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$1.3 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares Core US Aggregate Bond ETF (AGG, -$779 million) and iShares TIPS Bond ETF (TIP, -$561 million) handed back the largest individual net redemptions for the week.
For the first week in nine, municipal bond ETFs attracted net inflows, taking in $1.2 billion this week. iShares National Muni Bond ETF (MUB, +$595 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares California Muni Bond ETF (CMF, -$52 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-fifth week in a row—redeeming $10.6 billion—with the macro-group posting a market return of 2.72% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $6.8 billion, also witnessed their thirty-fifth consecutive week of net outflows while chalking up a 2.53% market gain on average for the fund-flows week. Nondomestic equity funds—posting a 3.21% weekly market gain on average—observed their twenty-sixth straight week of net outflows, handing back $3.9 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$5.3 billion) and small-cap funds (-$853 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$3.0 billion) and global equity funds (-$849 million) for the week.
Conventional Fixed Income Funds
For the seventh consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $11.8 billion this past week—while posting a 0.64% market return on average for the fund-flows week. None of the conventional fixed income fund macro-groups attracted net new money for the week. Corporate investment-grade debt funds (-$6.5 billion) suffered the largest net redemptions for the fund-flows week, bettered by flexible funds (-$1.5 billion) and international & global debt funds (-$1.3 billion).
The municipal bond funds group posted a 1.10% return on average during the fund-flows week (their first weekly plus-side return in nine) and witnessed net outflows for the seventh straight week, handing back $3.3 billion this week. High Yield Municipal Debt Funds (-$930 million) and General & Insured Municipal Debt Funds (-$804 million) suffered the largest net redemptions for the week.
Year to date, the municipal bond funds macro-group handed back $107.9 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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