by Tom Roseen.
Investors were net redeemers of fund assets (including those of conventional funds and ETFs) for the first week in three, withdrawing a net $23.3 billion for the Refinitiv Lipper fund-flows week ended Wednesday, November 9. Fund investors were net sellers of money market funds (-$11.5 billion), equity funds (-$8.5 billion), tax-exempt fixed income funds (-$2.5 billion), and taxable bond funds (-$838 million) for the week.
The U.S. equity and bond markets remained volatile during the fund-flows week as investors awaited the October employment figures, midterm election results, and the October consumer price index (CPI) report due out later in the week.
On the domestic side of the equation, the Dow Jones Industrial Average (+1.40%) posted the only plus-side returns of the broad-based U.S. indices for the fund-flows week. It was followed by the S&P 500 Index (-0.30%). The Nasdaq Composite (-1.63%) was the straggler of the group. Overseas, the Xetra DAX Total Return Index (+4.72%) posted the strongest plus-side returns of the other often-followed broad-based international indices, while the Nikkei 225 (+0.78%) and the FTSE 100 (+1.38%) were the group relative laggards.
For the fund-flows week, the Morningstar LSTA U.S. Leveraged Loan Index (+0.32%) outpaced the Bloomberg Municipal Bond Index (+0.22%) and the Bloomberg U.S. Aggregate Bond Index (-0.17%).
On Thursday, November 3, U.S. stocks extended their losing streak to a fourth consecutive day as investors digested comments by Federal Reserve Chair Jerome Powell after the Fed hiked its key lending rate by 75 basis points (bps) on Wednesday. Powell indicated the Fed is nowhere near pausing its fight against inflation, stating, “We have a way to go.” According to the CME’s FedWatch tool, investors were pricing in a 33% chance that the benchmark rate could climb to a range of 5.25% and 5.5%. As of Wednesday, the federal funds rate now stands at a target range of 3.75% to 4%. In other news, the October ISM services sector activity index declined to 54.4% from 56.7%, and the Bank of England hiked its key lending rate by 75 bps to 3%, its largest rate hike in 30 years. The 10-year Treasury yield rose four bps, closing out the day at 4.14%, while the two-year Treasury yield rose 10 bps to 4.71%.
U.S. stocks closed higher on Friday, November 4, as investors assessed a better-than-expected October nonfarm payrolls report. The Department of Labor reported the U.S. economy added 261,000 jobs last month, beating analysts’ expectations of 205,000. However, job creation slowed for the third straight month—coming in at its lowest value since December 2020—and the unemployment rate increased slightly from 3.5% in September to 3.7%, providing some solace to investors that growth may be cooling. The 10-year Treasury yield rose four bps to 4.14%, while the two-year yield fell five bps to 4.66%.
The Dow rose 423.78 points on Monday, November 7, as investors anticipated the results of Tuesday’s midterm elections and appeared to embrace the possibility of the potential gridlock in Washington, D.C. if Republicans win control of the House of Representatives. Investors also warmed to the news reported by The Wall Street Journal that Chinese leaders are considering steps to loosen their zero-COVID policy—which might help ease inflationary concerns caused by supply chain shortages.
Stocks continued their ascent on Tuesday, November 8, despite a meltdown in cryptocurrencies as concerns over the Binance-FTX deal began to impact the broader market early in the day. Nonetheless, the broad-based indices moved higher as investors continued to expect partisan gridlock on Capitol Hill as many pundits expected Republicans to take the U.S. House in Tuesday’s midterm elections.
U.S. stocks snapped their three-day winning streak on Wednesday, November 9, as the Dow and S&P 500 posted their worst post U.S. election-day performance in a decade, according to Dow Jones Market Data, as control of Congress remained in a state of limbo after a tighter-than-expected midterm race left control of the U.S. House and Senate unsettled. Investors also took their collective foot off the gas pedal ahead of the release of the October consumer price index report slated for release on Thursday. The 10-year Treasury yield finished the day down two bps at 4.12%
Exchange-Traded Equity Funds
Equity ETFs witnessed their sixth straight week of net inflows. However, they took in only $240 million for the most recent fund-flows week. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$2.6 billion), withdrawing money for the first week in six, while nondomestic equity ETFs witnessed their seventh straight week of net inflows, attracting $2.8 billion this past week. International equity ETFs (+$2.5 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week—helped by net inflows into emerging market ETFs (+$1.8 billion), followed by equity income ETFs (+$1.2 billion) and sector-energy ETFs (+$734 million). Meanwhile, large-cap ETFs (-$3.8 billion) suffered the largest net outflows, bettered by the sector-technology ETFs (-$1.5 billion).
Invesco QQQ Trust 1 (QQQ, +$2.5 billion) and iShares Core MSCI Emerging Markets ETF (IEMG, +$877 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, -$9.7 billion) experienced the largest individual net redemptions and iShares Expanded Tech-Software Sector ETF (IGV, -$668 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the fifth week in six, taxable fixed income ETFs witnessed net inflows, taking in $3.7 billion this week. APs were net purchasers of high-yield ETFs (+$1.6 billion), government-Treasury ETFs (+$1.5 billion), and corporate investment-grade debt ETFs (+$1.1 billion), while being net redeemers of flexible ETFs (-$523 million) and international & global debt ETFs (-$197 million).
iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.3 billion), iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB, +$840 million), and SPDR Portfolio Long Term Treasury ETF (SPTL, +$519 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 20+ Year Treasury Bond ETF (TLT, -$1.0 billion) and iShares Floating Rate Bond ETF (FLOT, -$311 million) handed back the largest individual net redemptions for the week.
For the third week in a row, municipal bond ETFs experienced net inflows, taking in $209 million this week. SPDR Nuveen Bloomberg Municipal Bond ETF (TFI, +$57 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares iBonds December 2022 Term Muni Bond ETF (IBMK, -$5 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 fortieth week in a row—redeeming $8.8 billion—with the macro-group chalking up a market return of 0.58% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly more than $5.8 billion, also witnessed their fortieth consecutive week of net outflows while posting a 0.13% market decline on average for the fund-flows week. Nondomestic equity funds—posting a 2.36% weekly market gain on average—observed their thirty-first straight week of net outflows, handing back slightly less than $3.0 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$3.5 billion) and mid-cap funds (-$625 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$2.6 billion) and global equity funds (-$382 million) for the week.
Conventional Fixed Income Funds
For the twelfth consecutive week, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $4.5 billion this past week—while posting a 0.01% market gain on average for the fund-flows week. The international & global debt funds macro-group (+$328 million) attracted the largest amount of net new money of the taxable bond funds group for the week, followed by government-mortgage funds (+$307 million). Corporate investment-grade debt funds (-$2.8 billion) suffered the largest net redemptions for the fund-flows week, bettered by flexible funds (-$1.1 billion) and balanced funds (-$564 million).
The municipal bond funds group posted a 0.01% loss on average during the fund-flows week (their fourth weekly market decline in five) and witnessed net outflows for the twelfth straight week, handing back $2.7 billion this week. Intermediate Municipal Debt Funds (-$718 million) and High-Yield Municipal Debt Funds (-$710 million) suffered the largest net redemptions for the week.
Year to date, the municipal bond funds macro-group handed back $131.4 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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