During LSEG Lipper’s fund-flows week that ended July 19, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the second week in three, adding in a net of $2.9 billion.
Equity funds (-$2.3 billion) observed weekly outflows, while money market funds (+$902 million), tax-exempt bond funds (+$1.0 billion), and taxable bond funds (+$3.2 billion) registered inflows on the week.
Index Performance
At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported positive returns—the Russell 2000 (+2.66%), Nasdaq (+3.15%), S&P 500 (+2.09%), and DJIA (+2.08%) were all in the black. This was the fourth straight week of gains for the S&P 500.
The Bloomberg Municipal Bond Total Return Index (+0.81%) recorded its first gain in three. The Bloomberg U.S. Aggregate Bond Total Return Index (+0.70%) logged its fifth positive weekly return in six.
Overseas indices traded mostly on the plus-side—Nikkei 225 (+2.11%), Shanghai Composite (-0.31%), FTSE 100 (+1.45%), and DAX (+1.17%).
Rates/Yields
The 10-two Treasury yield spread has remained negative (-1.03) for more than one year, with the two-year Treasury yield (4.77%) also yielding more than the 30-year yield (3.83%).
According to Freddie Mac, the 30-year fixed-rate average (FRM) fell for the first week in three—currently at 6.78%. The United States Dollar Index (DXY, -0.24%) fell slightly as the VIX (+1.09%) rose over the course of the week.
The CME Fedwatch tool currently has the likelihood of the Federal Reserve increasing interest rates by 25 basis points (bps) at 99.8%—up from 76.9% one month ago.
Market Recap
Our fund-flows week kicked off on July 13 with the Department of Labor reporting that initial claims for unemployment benefits fell by 12,000 to 237,000. The four-week moving average also fell by 6,750 to 246,750. Prior year numbers for both figures were 221,000 and 215,500, respectively. The Bureau of Labor Statistics published their Producer Price Index (PPI) report which showed PPI increased 0.1% in June from prior month and by the same amount from 12 months ago. Core-PPI, excluding foods, energy, and trade services also increased by 0.1% over the past month, but rose 2.6% over the last year—still the lowest annual increase in the last 12 months. The 10-year Treasury yield fell 2.64% while equity markets all increased on the day—Nasdaq (+1.58%), S&P 500 (+0.85%), Russell 2000 (+0.91%), and DJIA (+0.14%).
On Friday, July 14, banks kicked off their Q2 earnings season which were expected to be poor thanks to the Fed’s rate-hiking path. While JPMorgan Chase (JPM) rose 0.6% and Wells Fargo (WFC) only fell 0.3%, both banks have stated they have set aside more capital for expected losses in their commercial real estate portfolios. Overseas, China’s central bank may be intervening yet again to support their economy. The People’s Bank of China signaled they could be adjusting the reserve requirement ration while easing some property controls. Any type of response that increases liquidity in the Chinese market may be an inflationary tailwind here in the U.S. The University of Michigan’s consumer sentiment index increased for the second consecutive month to 72.6, marking the highest level since September 2021. Equity markets traded mostly down to end the calendar week—S&P 500 (-0.10%), Nasdaq (-0.18%), Russell 2000 (-1.01%), and DJIA (+0.33%). The two-year Treasury yield rose 3.20%.
On Monday, July 17, Russia announced it will end its participation in the grain deal with Ukraine that allows Ukraine to export crops through the Black Sea—U.S. futures on wheat and corn fell on the day. A survey published by the Federal Reserve Bank of New York highlighted that the application rate for any type of credit of the trailing 12 months has fallen to 40.3%, its lowest level since October 2020. Application rates fell for auto loans, but increased for credit cards, mortgages, and mortgage refinances. The survey also reported that the overall rejection rate for credit applications increased to 21.8%, the highest reading since June 2018. Treasury yield fell on the day while U.S. broad-based equity markets rose—led by the Russell 2000 (+1.05%).
On Tuesday, July 18, the Department of Commerce reported that U.S. spending at retailers increased in June for the third straight month (+0.2%). This was a decreased pace from last month’s 0.5% increase and below economist forecasts. The NAHB/Wells Fargo Housing Market Index increased to a level of 56, the highest reading since last June thanks to the continued low inventory. The Fed also published its Industrial Production and Capacity Utilization report which said that industrial production fell 0.5% during the month of June, marking the second straight month of decreases. Short-term Treasury yields increased, while longer-dated yields fell. Equity markets reported solid returns on the day, led by the Russell 2000 (+1.27%) and DJIA (+1.06%).
Our fund-flows week wrapped up Wednesday, July 19, with elevated temperatures being felt across the world. Phoenix, for example, recorded 110 degrees Fahrenheit for the nineteenth straight day and Rome reported its hottest temperature ever. Outside of individual health concerns, the heat puts extreme strain on the power grid as well as agriculture and crops. Real estate brokerage Redfin reported that U.S. home turnover has fallen to its lowest level in at least a decade. The Mortgage Bankers Association (MBA) published its weekly applications survey that showed the Market Composite Index, a gauge of mortgage loan application volume, increased 1.1% from last week. Equity markets increased on the day—Russell 2000 (+0.45%), DJIA (+0.31%), S&P 500 (+0.24%), and Nasdaq (+0.03%).
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $5.5 billion in weekly net inflows, marking the fourth straight weekly inflow. The macro-group posted a 1.98% gain on the week, its third consecutive weekly gain.
International equity ETFs (+$2.1 billion), sector-financial/banking ETFs (+$1.3 billion), and sector-technology ETFs (+$1.2 billion) were the largest inflows among equity ETF subgroups. International equity ETFs have posted three straight weeks of inflows while logging their largest weekly intake since the week ending February 8, 2023. Sector-financial/banking ETFs logged their second largest weekly inflow of the year as the saw their first weekly inflow in three.
Growth/value-large cap ETFs (-$1.8 billion), sector-healthcare/biotech ETFs (-$347 million), and gold and natural resources ETFs (-$93 million) were the largest outflows under the macro-group. Growth/value-large cap ETFs suffered their first weekly outflow in four weeks despite reporting gains in eight of the past 10 weeks.
Over the past fund-flows week, the top two equity ETF flow attractors were iShares: Core S&P 500 (IVV, +$2.9 billion) and SPDR Dow Jones Industrial Average (DIA, +$1.0 billion).
Meanwhile, the bottom two equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF (SPY, -$5.9 billion) and ProShares:UltraPro QQQ (TQQQ, -$464 million).
Exchange-Traded Fixed Income Funds
Exchange-traded taxable fixed income funds observed a $3.2 billion weekly inflow—the macro-group’s sixth weekly inflow in seven. Fixed income ETFs reported a weekly return of positive 0.47% on average, their fourth week in the black in five.
Corporate-high yield ETFs (+$1.8 billion), corporate-investment grade ETFs (+$1.5 billion), and international & global debt ETFs (+$446 million) were the top taxable fixed income subgroups to post inflows over the week. Corporate-high yield ETFs recorded their first weekly inflow in five as they realized their seventh weekly gain over the past eight weeks. Corporate-investment grade ETFs have logged nine weeks of inflows over the last 11 while realizing one weekly loss in six.
Government-Treasury ETFs (-$1.1 billion) and government-Treasury & mortgage ETFs (-$9 million) were the only taxable fixed income subgroups to witness outflows on the week. Government-Treasury ETFs have now suffered three weeks of outflows over the last four. This subgroup realized a gain of 0.63% over the week.
Municipal bond ETFs reported a $1.2 billion inflow over the week, marking their fifth largest weekly intake on record. The subgroup realized a positive 0.71%, marking the first plus-side return in three weeks.
iShares: iBoxx $High Yield Corporates (HYG, +$1.6 billion) and iShares: iBoxx $Investment Grade Corporates (LQD, +$585 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, SPDR Bloomberg 1-3 Months T-Bill (BIL, -$513 million) and iShares: 20+ Treasury Bond ETF (TLT, -$484 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$7.8 billion) for the seventy-sixth straight week. Conventional equity funds posted a weekly return of positive 1.87%, the third consecutive week of gains.
Growth/value-large cap (-$4.1 billion), international equity funds (-$1.9 billion), and growth/value-aggressive cap funds (-$608 million) were the largest subgroup outflows under conventional equity funds. Growth/value-large cap funds have suffered 30 consecutive weeks of outflows while observing a 2.28% gain on average over the last week. The four-week net flow moving average has remained negative for 78 weeks.
Sector-technology conventional funds (+$13 million) was the only subgroup to report weekly inflows of greater than $1 million. This was the fifth week of inflows over the past six.
Conventional Fixed Income Funds
Conventional taxable-fixed income funds realized a weekly inflow of $82 million—marking their third consecutive weekly inflow. The macro-group logged a positive 0.69% on average—their seventh week of gains in eight.
Conventional corporate-investment grade funds (+$421 million), corporate-high yield (+$374 million), and balanced funds (+$80 million) reported the largest weekly inflows under taxable fixed income conventional funds. This was the seventh straight weekly inflow for conventional corporate-investment grade funds. The subgroup posted a positive 0.52% on average during the week.
Flexible funds (-$706 million), government-Treasury funds (-$160 million), and international & global debt funds (-$83 million) were the top taxable fixed income macro-group to produce outflows. Flexible funds have now observed 10 weeks of outflows over the last 11 despite three straight weeks of plus-side returns.
Municipal bond conventional funds (ex-ETFs) returned a positive 0.79% over the fund-flows week—their sixth weekly gain in eight. The subgroup experienced a $144 million outflow, marking the fourth straight weekly outflow.
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