by Jack Fischer.
During Refinitiv Lipper’s fund-flows week that ended May 10, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the third straight week, adding a net of $13.4 billion.
Money market funds (+$16.4 billion) and taxable-bond funds (+$726 million) were the only macro-groups to report inflows. Equity funds (-$3.7 billion) and tax-exempt bond funds (-$102 million) suffered outflows.
At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices reported positive returns—Russell 2000 (+1.16%), Nasdaq (+2.34%), S&P 500 (+1.15%), and DJIA (+0.35%) all realized their second consecutive plus-side weekly return.
The Bloomberg Municipal Bond Total Return Index (+0.30%) recorded its eighth weekly gain in the past 10 weeks. The Bloomberg U.S. Aggregate Bond Total Return Index (-0.51%) logged its first negative return in three weeks.
Overseas indices traded mixed—the Shanghai Composite (-0.04%) and Dax (-0.22%) depreciated, while the FTSE 100 (+0.07%) and Nikkei 225 (+0.40) ended the week in the black.
The 10-two Treasury yield spread remained negative (-0.48), marking the two-hundred-and-twenty-second straight trading session with an inverted yield curve. The 10-year Treasury yield rose 2.66% on the week.
According to Freddie Mac, the 30-year fixed-rate average (FRM) decreased for the second consecutive week—currently at 6.35%. The United States Dollar Index (DXY, +0.13%) rose, while the VIX (+8.26%) fell over the course of the week.
Our fund-flows week kicked off on Thursday, May 4, with the market reacting to the Federal Reserve’s unanimous decision to increase the fed funds rate by another quarter of a percentage point—to the range of 5.00%-5.25% and its highest level since 2007. Fed policymakers believe the banking crisis has been contained, the labor market remains strong, and inflation is still running too hot. In his press conference, Fed Chair Jerome Powell said, “People did talk about pausing, but not so much at this meeting…We feel like we’re getting closer or maybe even there, (but we) are prepared to do more if greater monetary policy restraint is warranted.” Sell-offs occurred in equity markets, with investors buying into shorter-term Treasuries—the Russell 2000 (-1.18%), DJIA (-0.86%), S&P 500 (-0.72%), and Nasdaq (-0.49%) all lost ground. The two-year Treasury yield fell 1.92%, with the 10-year rising 0.51%.
Equity markets had a nice bounce-back day on Friday, May 5, with the Russell 2000 (+2.39%) and S&P 500 (+1.85%) hitting their largest daily return since January 31, 2023, and January 20, 2023, respectively. Treasury yields all rose on the day for the first time in three trading sessions, led by the two-year (+3.71%) and three-year (+3.68%). The Department of Labor published its nonfarm payrolls report which showed 253,000 new jobs were produced last month, well above the estimates of 180,000. The unemployment rate fell from 3.5% to 3.4%, marking the lowest level since 1969. The labor force participation rate was unchanged at 62.6%, remaining below the pre-pandemic February 2020 level of 63.3%.
On Monday, May 8, the Federal Reserve Bank of New York published April’s Survey of Consumer Expectations which showed the median outlook for one-year inflation was 4.4%, a decrease of 0.3% from March. Expectations for three- and five-year inflation were up 0.1% to 2.9% and 2.6%, respectively. President Joe Biden started scheduling meetings with top congressional leaders to start working toward an agreement to raise the debt ceiling once again. Treasury Secretary Janet Yellen said that payment on government bills could run out as early as June 1. Last month House Speaker Kevin McCarthy put forward a bill that proposed raising the debt ceiling by $1.5 trillion to $32.9 trillion. Yellen has reportedly been reaching out to U.S. business leaders lobbying for their help by explaining how drastic of an effect a default would have on the economy. Equity markets traded mixed—the Nasdaq (+0.18%) and S&P 500 (+0.05%) were both up, while the Russell 2000 (-0.31%), and DJIA (-0.17%) incurred losses.
On Tuesday, May 9, New York Federal Reserve President John Williams said that Federal Open Market Committee members “haven’t said we’re done raising rates.” He went on to say that he sees no reason to cut rates this year. Williams does forecast that inflation will fall to about 3.25% this year and will continue to fall to the central bank’s target of 2% over the next two years. Equity markets fell in advance of the consumer price report publication—the Nasdaq (-0.63%), S&P 500 (-0.46%), Russell 2000 (-0.27%), and DJIA (-0.17%) were all in the red.
Our fund-flows week wrapped up Wednesday, May 10, with the ever-important Department of Labor’s Consumer Price Index (CPI) report. The CPI showed a 4.9% year-over-year increase, down from 5.0% last month and below economists’ estimates. April’s CPI marks the lowest CPI reading in two years. Core-CPI, excluding food and energy, fell 0.1% to a 12-month rate of 5.5%, while month-over-month increased 0.4%—both in line with forecasts. Prices for used cars and trucks jumped 4.4%, while gas prices rose 3.0%. Food prices went unchanged for the second straight month. Equity markets traded mostly positive on the day—the Nasdaq (+1.04%), Russell 2000 (+0.56%), and S&P 500 (+0.45%) all traded in the black, while the DJIA (-0.09%) was in the red. Treasury yields also fell, with the 10-year decreasing 2.52% to close the day.
Exchange-traded equity funds recorded $2.6 billion in weekly net inflows, marking the fourth weekly intake in five. The macro-group posted a 1.08% gain on the week, its seventh week in the black over the last eight.
Growth/value-large cap ETFs (+$3.5 billion), international equity ETFs (+$1.3 billion), and sector-other ETFs (+$856 million) were the top subgroups to log inflows. This was the fourth weekly inflow in five for growth/value-large cap ETFs as they also posted their third straight week with a positive four-week net flow moving average. The subgroup returned a positive 1.30% over the week, marking back-to-back weeks in the black.
Growth/value-small cap ETFs (-$1.5 billion), sector-financial/banking ETFs (-$1.3 billion), and growth/value-aggressive ETFs (-$536 million) were the largest outflows under the macro-group. Despite two straight weeks of positive returns, growth/value-small cap ETFs have suffered back-to-back weekly outflows. Sector-Financial/Banking ETFs suffered their largest weekly outflow of the year and largest since the week ending September 21, 2022. This subgroup realized a gain of 0.08% on the week, the first positive return in three weeks.
Over the past fund-flows week, the top two equity ETF flow attractors were SPDR S&P 500 ETF (SPY, +$4.4 billion) and SPDR Gold (GLD, +$700 million).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Select Sector: Financial Services SPDR (XLF, -$1.4 billion). and iShares: Russell 2000 ETF (IWM, -$899 million)
Exchange-traded fixed income funds observed a $2.4 billion weekly inflow—the macro-group’s first weekly inflow in three weeks. Fixed income ETFs reported a weekly return of negative 0.45% on average, their first weekly loss in three.
Government-Treasury ETFs (+$2.1 billion), corporate-investment grade ETFs (+$1.0 billion), and flexible funds ETFs (+$336 million) were the top taxable fixed income subgroups to post inflows over the week. Government-Treasury ETFs have now logged 12 weeks of inflows in the past 13, even though they suffered a negative 0.43% return over the past week. Corporate-investment grade ETFs attracted their first weekly inflow over the last three weeks. This subgroup also recorded a negative weekly performance (-0.36%).
Corporate-high yield ETFs (-$780 million), international & global debt ETFs (-$532 million), and government-Treasury & mortgage ETFs (-$5 million) were the only taxable fixed income subgroups to witness outflows on the week. Corporate-high yield ETFs have produced outflows in back-to-back weeks. This subgroup has logged three weeks of negative returns in four.
Municipal bond ETFs reported a $148 million inflow over the week, marking their second weekly inflow in the last five. The subgroup realized a positive 0.16% average, their ninth week of gains in 10.
iShares: 20+ Treasury Bond ETF (TLT, +$551 million) and Bond Bloxx Bloomberg One Year Target Duration US Treasury ETF (XONE, +$514 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, iShares: iBoxx $Investment Grade Corporates (LQD, -$575 million) and SPDR Bloomberg High Yield Bond ETF (JNK, -$348 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$6.2 billion) for the sixty-sixth straight week. Conventional equity funds posted a weekly return of positive 0.97%, the eighth week of gains in 10.
Growth/value-large cap (-$2.7 billion), growth/value-small cap (-$926 million), and equity income funds (-829 million) were the largest subgroup outflows under conventional equity funds. Despite seven weeks of gains in eight, growth/value-large cap funds have suffered 20 consecutive weeks of outflows. The four-week net flow moving average has remained negative for 68 weeks.
Sector-technology funds (+$29 million) and international equity funds (+$9 million) were the only subgroups to post a weekly inflow under equity mutual funds. Sector-technology funds observed their first weekly inflow in 18 weeks and have only posted two weekly inflows over the last 71 weeks. This sub-group has logged three weeks of gains in the last four.
Conventional taxable-fixed income funds realized a weekly outflow of $1.7 billion—marking their twelfth straight weekly outflow. The macro-group logged a negative 0.14% on average—their first week of losses in three.
Flexible funds (-$1.2 billion), balanced funds (-$422 million), and corporate-high yield funds (-$422 million) reported the largest weekly outflows under taxable fixed income conventional funds. Flexible funds have now observed 10 weeks of outflows in 11 while realizing eight weeks of gains in those same 11 weeks.
Conventional corporate-investment grade funds (+$420 million), government-mortgage (+$40 million), and corporate-high quality funds (+$27 million) were the only taxable fixed income macro-group to produce inflows. Corporate-investment grade funds realized their second straight weekly inflow while suffering their first sub-zero weekly return (-0.38%) in three weeks.
Municipal bond conventional funds (ex-ETFs) returned a positive 0.15% over the fund-flows week—their sixth weekly gain in seven. The subgroup experienced $249 million in outflows, marking the twelfth straight week of outflows.
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