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May 1, 2023

Domestic Equity Funds on Pace for Sixth Straight Monthly Outflow

by Jack Fischer.

Surprisingly, domestic equity funds have realized four weeks of inflows over the last six. But these were the only four weekly intakes of the year—before this current run, domestic equity funds suffered 11 consecutive weeks of outflows. First-quarter net flows were negative $63.3 billion, marking the second-worst quarterly total trailing only Q3 2020 (-$106.9 billion) and the fourth straight quarter of outflows.

It’s still too early to report final April flows, but preliminary data suggests April will continue the streak of five straight monthly net outflows. If that is the case, April outflows will cement the first four months of 2023 as the worst start to a calendar year for domestic equity funds.

Last week saw better-than-expected earnings reports for Microsoft, Meta, Intel, Chevron, and ExxonMobil. Snap, Pinterest, First Republic, and Bed Bath & Beyond did not fare as well. First Republic was taken over by U.S. regulators, leading to the third regional bank failure in just the past few months. The Federal Deposit Insurance Corporation (FDIC) was appointed the receiver and has accepted a bid from JPMorgan to assume nearly all assets of the bank. Bed Bath & Beyond filed for Chapter 11 bankruptcy protection after numerous attempts to raise capital. The company has said it will try and keep the 480 stores open as it enters the restructuring process.

We have another big week ahead of us as Pfizer, Uber, AMD, Apple, and Starbucks, among others, present their earnings reports. Also, this week we have key updates with the Job Openings and Labor Turnover Survey (JOLTS) releasing on Tuesday, ADP’s National Employment Report going out on Wednesday, and of course the Federal Open Market Committee (FOMC) meeting. Market participants are betting on another 25-basis point (bps) rate hike that will get the federal funds rate range to 5.0% to 5.25%.

Domestic equities seeing three straight weekly inflows could be an indication that we are going to see a flow trend reversal. Future outlooks aren’t as gloomy as previously reported and the Fed seems to be nearing the end of its rate hiking cycle. Will asset prices start to recover or do U.S. equity funds still have a way to go?

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