Investors were net sellers of fund assets (including those of conventional funds and ETFs) for the first week in eight, withdrawing a net $69.7 billion for the Refinitiv Lipper fund-flows week ended Wednesday, April 19. Fund investors were net purchasers of taxable bond funds (+$1.4 billion) while being net redeemers of money market funds (-$67.4 billion), tax-exempt fixed income funds (-$2.9 billion), and equity funds (-$856 million) for the week.
Market Wrap-Up
Despite late week news about sticky double-digit inflation in the U.K. and hawkish comments by select Federal Reserve officials, signs of U.S. cooling inflation, better-than-expected Q1 earnings reports from some big bank stocks, and the CBOE Volatility Index hitting its lowest value since January 2022 pushed equity markets higher during the fund-flows week.
On the domestic equity side of the equation, investors became more risk seeking for the week. The Nasdaq Composite (+1.91%) posted the strongest return of the broad-based U.S. indices, followed by the S&P 500 (+1.53%) and the Russell 2000 (+1.45%). The Dow Jones Industrial Average (+0.74%) was the relative laggard of the group. Overseas, the Shanghai Composite (+1.09%) posted the strongest plus-side returns of the often-followed broad-based international indices, followed by the Xetra DAX (+1.05%) and the Nikkei 225 (+0.87%). Meanwhile, the FTSE 100 (+0.81%) posted the smallest gains.
For the fund-flows week, the Morningstar LSTA U.S. Leveraged Loan Index (+0.33%) outpaced the Bloomberg U.S. Aggregate Bond Index (-1.08%) and the Bloomberg Municipal Bond Index (-1.52%). The 10-year Treasury yield rose 19 basis points (bps) for the week, settling at 3.60%, while the two-year Treasury yield rose 29 bps, to close out the flows week at 4.24%.
On Thursday, April 13, the S&P 500 and Dow booked their highest close in two months as data showed inflation pressures might be easing. The U.S. Bureau of Labor Statistics reported that March wholesale prices fell 0.5%, their sharpest decline in almost three years. The headline producer price index value fell to 3.6% on a year-over-year basis in March from 4.5% the month prior. Possibly adding to the perceived decline in inflationary expectations, first-time jobless claims from the week prior showed an 11,000 increase in unemployment claims to 239,000, showing a small, but steady rise in layoffs in the U.S. economy.
U.S. stocks closed moderately lower on Friday, April 14, as investors assessed strong bank earnings, weak retail sales, and hawkish comments by Fed officials. Economic data showed that March retail sales—a critical component of consumer spending—declined 1%, dropping for the fourth month in five. And despite JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) all reporting better-than-expected Q1 earnings and revenue, hawkish comments by Federal Reserve Governor Christopher Waller, stating the Fed needs to keep raising interest rates because inflation is too high, and Chicago Fed President Austan Goolsbee, who said the U.S. economy could slip into a recession, kept investors at bay.
U.S. stocks finished modestly higher on Monday, April 17, as the first full week of the Q1 earnings season began in earnest as 60 of the S&P 500 stocks were scheduled to report earnings this week. With a few big banks reporting better-than-expected earnings the day before—helping ease some the banking liquidity concerns from March—the CBOE Volatility Index (VIX) came in around 17, its lowest value since January 2022. Adding to quasi-sanguine mood, the April New York Fed’s Empire State business conditions index rose 35.4 points to 10.8, its first plus-side reading in five months.
U.S. stocks finished mixed on Tuesday, April 18, as investors tried to assess the path of the Fed’s terminal interest rate while awaiting more Q1 earnings reports. Despite not being a voting member of the Fed’s 2023 FOMC, St. Louis Reserve President James Bullard restated his call for higher interest rates to fight inflation. He would like to see rates range between 5.5% and 5.75%. In other news, data out of China showed its GDP rose to 4.5% in Q1, helped by increased consumption and retail sales after Chinese authorities lifted their harsh zero-COVID policies.
On Wednesday, April 19, U.S. stocks ended flat as investors weighed another round of mixed earnings reports alongside hearing the news that the U.K. reported higher-than-expected inflation statistics. While March U.K. inflation slowed to 10.1% year-over-year—down from the 10.4% in February—the sticky double-digit inflation values lead to selling of government bonds, pushing the yield on the 2-year gilt to 3.81%, a rise of 13 bps. The two-year U.S. Treasury yield rose five bps on the day to close at 4.24%
Exchange-Traded Equity Funds
Equity ETFs experienced net inflows for the second week in a row, taking in a little more than $4.1 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$2.8 billion), injecting net new money also for the second consecutive week, while nondomestic equity ETFs witnessed their third week of net inflows in a row, attracting $1.4 billion this past week. Large-cap ETFs (+$1.9 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by international equity ETFs (+$1.4 billion) and sector-healthcare/biotechnology ETFs (+$640 million). Meanwhile, sector-energy ETFs (-$520 million) suffered the largest net outflows, bettered by sector-real estate ETFs (-$254 million) and small-cap ETFs (-$246 million).
SPDR S&P 500 ETF (SPY, +$2.4 billion) and iShares MSCI USA Quality Factor ETF (QUAL, +$825 million) 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, -$2.3 billion) experienced the largest individual net redemptions and iShares Russell 2000 ETF (IWM, -$535 million) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the ninth consecutive week, taxable fixed income ETFs witnessed net inflows, taking in $2.6 billion this week. APs were net purchasers of corporate high-yield ETFs (+$3.1 billion), corporate investment-grade debt ETFs (+$1.4 billion), and flexible ETFs (+$965 million) while being net redeemers of government-Treasury ETFs (-$3.2 billion).
iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.5 billion), SPDR Bloomberg High Yield Bond ETF (JNK, +$1.1 billion), and iShares 20+ Year Treasury Bond ETF (TLT, +$790 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 7-10 Year Treasury Bond ETF (IEF, -$1.9 billion) and SPDR Portfolio Intermediate Term Treasury ETF (SPTI, -$1.5 billion) handed back the largest individual net redemptions for the week.
For the second week in a row, municipal bond ETFs experienced net outflows, handing back $630 million this week. iShares California Muni Bond ETF (CMF, +$14 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (MUB, -$384 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 sixty-third week in a row—redeeming $5.0 billion—with the macro-group posting a 1.18% market gain for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly less than $2.5 billion—witnessed their sixteenth consecutive week of net outflows while posting a 1.31% market advance on average for the fund-flows week. Nondomestic equity funds—posting a 0.86% weekly market rise on average—observed their ninth week of net outflows in a row, handing back slightly more than $2.5 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$692 million) and mid-cap funds (-$534 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$1.8 billion) and global equity funds (-$693 million) for the week.
Conventional Fixed Income Funds
For the ninth week in a row, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $1.2 billion this past week—while posting a 0.40% market loss on average for the fund-flows week. Only one of the taxable fixed income fund macro-groups attracted net inflows for the week, with government-Treasury funds taking in $49 million. Balanced funds (-$314 million) suffered the largest net redemptions, bettered by corporate investment-grade debt funds (-$278 million) and flexible funds (-$271 million).
The municipal bond funds group posted a 1.54% market loss on average during the fund-flows week (their first weekly market decline in four) and witnessed net outflows for the ninth straight week, handing back $2.2 billion this week. General & Insured Municipal Debt Funds (-$2.2 billion) suffered the largest net outflows of the macro-group, bettered by Short Municipal Debt Funds (-$323 million) and Short/Intermediate Municipal Debt Funds (-$239 million), while New York Municipal Debt Funds (+$19 million) witnessed the largest weekly net inflows of the macro-group.
Money Market Funds
Given the decline of banking sector concerns, it wasn’t too surprising to see money market funds (-$67.4 billion, their third largest net outflows on record) witness their first weekly net outflows in six. Institutional U.S. Government Money Market Funds (-$33.4 billion) handed back the largest net redemptions for the week, bettered by Institutional U.S. Treasury Money Market Funds (-$20.6 billion), U.S. Government Money Market Funds (-$3.3 billion), Money Market Instrument Funds (-$2.1 billion), U.S. Treasury Money Market Funds (-$1.6 billion), and Institutional Money Market Funds (-$995 million).
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