Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the third week in a row, injecting a net $88.4 billion for the Refinitiv Lipper fund-flows week ended Wednesday, March 15. However, the headline figure is a bit misleading—but perhaps telling. Fund investors were net purchasers of money market funds (+$108 billion, their fifth largest weekly net inflows on record) while being net redeemers of equity funds (-$17.7 billion), taxable bond funds (-$1.5 billion), and tax-exempt fixed income funds (-$461 million) for the week.
Market Wrap-Up
A stronger-than-expected nonfarm payrolls report, liquidity concerns for select regional banks, and a 47-basis point (bp) decline in the 10-year Treasury yield had significant impacts on equity and bond returns during the fund-flows week, as signs of a quasi-traditional beginning to a recession may be taking shape.
On the domestic equity side of the equation, as investors took risk off their portfolios and volatility picked up, stocks posted market declines for the fund-flows week. The Nasdaq Composite (-1.23%) did the best job mitigating losses of the broad-based U.S. indices, followed by the S&P 500 (-2.50%) and the Dow Jones Industrial Average (-2.82%). The Russell 2000 (-7.10%) witnessed the largest decline of the group. Overseas, European markets were roiled after concerns over the health of Credit Suisse ignited renewed banking sector angst. The Shanghai Composite (+0.40%) posted the only plus-side returns of the often-followed broad-based international indices, followed by the Nikkei 225 Index (-1.32%). Meanwhile, the Xetra DAX (-5.89%) and the FTSE 100 (-5.87%) suffered the largest declines.
For the fund-flows week, a flight to safety was a shot in the arm for bonds, with the Bloomberg U.S. Aggregate Bond Index (+2.63%) outpacing the Bloomberg Municipal Bond Index (+1.32%) and the Morningstar LSTA U.S. Leveraged Loan Index (-1.22%).
On Thursday, March 9, all three major U.S. stock indices suffered losses as investors bailed on the banking sector after SVB Financial Group (SIVB) announced that it had taken extraordinary measures to shore up its failing balance sheet and Silvergate Capital (SI) decided to winddown its crypto banking operations. Those concerns accompanied by a spillover to Signature Bank (SBNY) fanned contagion concerns and triggered a flight to safety. In other news, first-time jobless claims jumped to a 10-week high of 211,000, eclipsing analysts’ forecast of 195,000. The two-year Treasury yield fell 15 bps (its largest one-day decline since January 6), closing out the day at 4.90%, while the 10-year Treasury yield declined five bps to 3.93%.
U.S. stock tumbled on Friday, March 10, with the Dow experiencing its worst one-week return since June after investors learned that Silicon Valley Bank (SVB) was shut down by California regulators and in receivership under the Federal Deposit Insurance Corporation (FDIC), becoming the first FDIC-insured institution to fail this year. And despite a stronger-than-expected February nonfarm payroll report that showed the U.S. economy added 311,000 jobs last month—handily beating analyst estimates of 225,000 jobs—average hourly earnings growth slowed from 0.3% in January to 0.2%, while the unemployment rate rose to 3.6%—perhaps an indication that the labor market might be cooling. With concerns that the inverted Treasury yield curve might be pressuring the banking industry, the odds of a 50-bps hike by the Federal Reserve Board on March 22 have waned. Fed-funds futures traders priced in a 62% chance that the Fed will now hike its key lending rate by 25 bps, according to the CME FedWatch Tool. The 10-year Treasury yield declined 23 bps to 3.70%.
The Dow suffered its fifth consecutive daily decline on Monday, March 13, as investors assessed interest rate outlooks after New York’s Signature Bank was shuttered by state regulators over the weekend—raising contagion concerns despite the quick response and commitment by the Treasury Department, FDIC, and the Fed to safeguard deposits at Signature Bank and SVB. Treasury yields plummeted on the day as investors reset expectations for future rate hikes, betting financial instability will cause the Fed to slow or pause its rate hikes. The two-year Treasury yield fell 57 bps to close at 4.03%—its largest one-day decline since October 20, 1987.
The Dow snapped its five-day losing streak on Tuesday, March 14, after investors evaluated February inflation data that suggested pricing pressures might be easing. The consumer-price index showed the cost of living came in at a 6% year-over-year rise in February, down from 6.4% in January—its lowest since September 2021, while core CPI (stripping out food and energy prices) was up 5.5% year-over-year, down from the 5.6% a month earlier. According to the CME FedWatch Tool, Fed-funds futures traders priced in a 71% probability that the Fed will raise its key lending rate by 25 bps on March 22. The two-year Treasury yield rose 17 bps to 4.20%.
On Wednesday, March 15, stocks ended mostly lower as investors reacted to news that Credit Suisse reported that it had material weakness in financial controls and Saudi National Bank, its largest investor, said it would not provide further financial support—raising banking sector contagion fears, despite Swiss authorities’ commitment to provide additional liquidity if necessary. In other news, economic data pointed to a possible slowdown in consumer spending after February retail sales fell 0.4%, declining for the third month in four. And the producer-price index (PPI) fell 0.1% in February; however, the core PPI rose 0.2%. The two- and 10-year Treasury yields fell 27 and 13 bps, respectively, to 3.93% and 3.51%.
Exchange-Traded Equity Funds
Equity ETFs experienced net outflows for the third week in four, handing back a little less than $11.9 billion for the most recent fund-flows week—their largest weekly net outflows since December 21, 2022. Authorized participants (APs) were net redeemers of domestic equity ETFs (-$10.8 billion), pulling out money for the fourth week in five, while nondomestic equity ETFs witnessed their second consecutive week of net outflows, handing back $1.1 billion this past week. Small-cap ETFs (+$540 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by sector-utilities ETFs (+$383 million) and sector-financial/banking ETFs (+$365 million) macro-groups—as investors appeared to buy the dip. Meanwhile, large-cap ETFs (-$9.1 billion) suffered the largest net outflows, bettered by sector-energy ETFs (-$1.2 billion) and international equity ETFs (-$1.0 billion).
SPDR S&P Regional Banking ETF (KRE, +$1.4 billion, its strongest weekly net inflows on record since its inception on June 19, 2006—after posting a 22.65% market decline for the week) and SPDR Gold Trust (GLD, +$501 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, -$8.0 billion) experienced the largest individual net redemptions and Energy Select Sector SPDR ETF (XLE, -$1.0 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the fourth consecutive week, taxable fixed income ETFs witnessed net inflows, taking in $3.7 billion this week. APs were net purchasers of government-Treasury ETFs (+$7.1 billion) and government-mortgage ETFs (+$319 million) while being net redeemers of corporate investment-grade debt ETFs (-$1.5 billion), flexible ETFs (-$1.2 billion), and corporate high-yield ETFs (-$1.1 billion).
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$2.5 billion), iShares 7-10 Year Treasury Bond ETF (IEF, +$1.2 billion), and iShares 0-3 Month Treasury Bond ETF (SGOV, +$823 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg High Yield Bond ETF (JNK, -$627 million) and JPMorgan Ultra-Short Income ETF (JPST, -$472 million) handed back the largest individual net redemptions for the week.
For the seventh week in eight, municipal bond ETFs experienced net outflows, handing back $83 million this week. iShares National Muni Bond ETF (MUB, +$170 million) witnessed the largest draw of net new money of the municipal bond ETFs, while SPDR Nuveen Bloomberg Municipal Bond ETF (TFI, -$111 million) experienced the largest net redemptions in the subgroup.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the fifty-eighth week in a row—redeeming $5.8 billion—with the macro-group posting a 3.78% market decline for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $4.8 billion, witnessed their eleventh consecutive week of net outflows while posting a 3.75% market loss on average for the fund-flows week. Nondomestic equity funds—posting a 3.84% weekly market drubbing on average—observed their fourth week of net outflows in a row, handing back slightly more than $1.0 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$3.7 billion) and small-cap funds (-$304 million). Investors on the nondomestic equity side were net redeemers of global equity funds (-$554 million) and international equity funds (-$484 million) for the week.
Conventional Fixed Income Funds
For the fourth week in a row, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $5.2 billion this past week—while posting a 0.31% market gain on average for the fund-flows week. The government-Treasury funds macro-group (+$107 million) attracted the only net inflows of the taxable bond funds group for the week. Corporate investment-grade debt funds (-$2.4 billion) suffered the largest net redemptions, bettered by balanced funds (-$1.1 billion) and flexible funds (-$940 million).
The municipal bond funds group posted a 0.84% market gain on average during the fund-flows week (their third weekly market rise in a row) and witnessed net outflows for the fourth straight week, handing back $378 million this week. General & Insured Municipal Debt Funds (-$231 million) suffered the largest net outflows of the macro-group, bettered by Short Municipal Debt Funds (-$189 million), while High Yield Municipal Debt Funds (+$345 million) witnessed the largest weekly net inflows of the macro-group.
Money Market Funds
Perhaps as a result of disintermediation of bank deposits, given the liquidity fears brought on by SVB and Signature Bank failures this week and a flight to safety, money market funds (+$108.0 billion) witnessed their fifth largest weekly net inflows on record dating back to 1992, taking in net new money for the fourth week in five. Institutional U.S. Government Money Market Funds (+$54.5 billion) took in the largest draw of net new money, followed by Institutional U.S. Treasury Money Market Funds (+$48.4 billion), U.S. Treasury Money Market Funds (+$16.2 billion), and U.S. Government Money Market Funds (+$11.8 billion). Meanwhile, Money Market Instrument Funds (-$10.0 billion) experienced the largest net redemptions this week, bettered by Institutional Money Market Funds (-$7.8 billion).
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