US Federal Reserve Chairman Kevin Warsh waves as he leaves a press conference, following a two-day meeting of the Federal Open Market Committee (FOMC), at the Federal Reserve in Washington, DC, US, October 28, 2026. REUTERS/Kylie Cooper
Index Performance
U.S. equity performance as mixed, with losses in the major large-cap benchmarks offset by gains in smaller-cap equities. The Nasdaq fell 2%, while the Dow Jones Industrial Average declined 0.8%, and the S&P 500 slipped 0.6%; the Russell 2000 advanced 1.3%. Fixed income indices were in a sea of green: The FTSE Municipal Tax-Exempt Investment Grade Bond Total Return index and FTSE U.S. Broad Investment Grade Bond Total Return Index each gained 0.6%, while the FTSE High Yield Total Return Index rose 0.5%. Within Commodities, the FTSE CoreCommodity CRB Index dipped 1.7%.
Macro Viewpoint
Hocus Pocus! Markets spent the week fixed on the Fed’s decision, Gross Domestic Product (GDP) Advances, and the Personal Consumption Expenditures Price Index (PCE), and together the three reset rate expectations and sentiment. After the 25-basis point (bps) hike in September, investors were uncertain about the Fed’s next move. The dot plot still points to one more hike before year-end, but it did not come at this meeting. The committee voted 10-2 to hold the federal funds target range at 3.75% to 4.00%. Growth is picking up, but inflation remains well above the 2% target, pushed higher by an energy supply shock out of the Middle East that is weighing on U.S. consumers.
Headline PCE inflation ran 3.6% over the past year. Consumers continued to spend regardless, and personal consumption expenditures rose $113.1bn for the month. Real disposable personal income fell 0.3%, meaning wages are not keeping pace with prices and households are making up the difference from savings. The personal savings rate fell to 3.8% from 5.6% in January, the high for the year.
Real GDP grew at a 3.4% annual rate in the third quarter, ahead of the 3.2% Reuters consensus and a sizable step-up from the 2.2% posted in the second quarter. Investment, consumer spending, and government spending all contributed. Non-residential investment did most of the work on the investment side, with its contribution rising from 1.25% to 1.78%. Within that, information processing equipment rose from 0.19% to 0.86% and computers and peripheral equipment moved from -0.09% to 0.72%, consistent with the ongoing data center buildout. Government spending rose considerably as well. The federal contribution from -0.15% to 0.91%, with national defense accounting for a good portion of the move. On the consumer side, health care led services, while nondurables led goods, the increase was mainly due to the increase in prescription drugs. This composition differs from growth driven by travel, recreation or durable goods. It indicates households are allocating a large share of income to necessities rather than discretionary purchases.
Taken together, the average consumer is facing a hawkish Fed, inflation that has yet to come down, and an economy that continues to expand. There is little reason for the 10-year yield to move below 5% anytime soon. Cash and short-dated Treasures are compensating investors well to wait, while longer-dates bonds, which are most sensitive to higher borrowing costs, remain under pressure. The next several weeks are busy. The November jobs report, the next Consumer Price Index reading, and the December Fed meeting can each move markets quickly, and a hot print on any of these items would increase the probability of a December hike from likely to near certain. Investors should be prepared for a volatile stretch.
On the Yield Front
Treasury yields declined across maturities, led by a 10bps drop in the 2YR; the 5YR fell 8bps, the 10YR 6bps, and the 30YR 1bps. The front-end led rally steepened the curve, widening the 2s10s spread by about 4bps to approximately 34bps, though it remains roughly 35bps flatter than at year-end.
Mutual Funds vs. ETFs
ETFs attracted $27.2bn of net inflows while traditional mutual funds suffered $79.9bn of net outflows, and the split ran through every asset class. Equity ETFs took in $18bn against $20.4bn of outflows from traditional equity funds, taxable bond ETFs collected $7.1bn while traditional taxable bond funds posted net outflows of $7bn. Municipal ETF gained $3.6bn, while their conventional counterparts dipped $1.8bn. Alternatives were the one asset class where both wrappers finished positive, with ETFs adding $0.5bn and traditional funds $0.4bn. Commodities ETFs (-$1.3bn) carried the group entire outflow, while things remained flat on the traditional side. Mixed Asset ETFs ticked (+$0.2bn) higher, while traditional funds sipped $0.8bn. Within the money market universe, the outflows were almost entirely traditional mutual funds, posting a net outflow of -$47.3bn, and money market ETFs losing $0.9bn.
Fund Flows by Asset Type
Trick, no treat. Investors were spooked during the LSEG Lipper week ending October 28, 2026 and withdrew a net $49.7bn from fund assets during the week. Money Market Funds accounted for the bulk of the outflows, shedding $48.3bn. Equity (-$2.4bn), Mixed-Assets (-$0.7bn), and Commodity Funds (-$1.3bn) also recorded net redemptions. Taxable Bond (+$0.1bn), Municipals ($+1.8bn) and Alternatives Funds ($1.0bn) were the only macro-groups to post net inflows, but their gains were not enough to offset outflows elsewhere.
Equity funds saw their outflows concentrated in broad-based U.S. equity classifications. Large-Cap funds (-3.7bn) recorded the largest outflows, followed by Mid-Cap funds (-2.2bn), Small-Cap funds (-0.8bn), Multi-Cap funds ($-0.3bn) and Developed Global Market Funds (-0.3bn), as investors pared U.S. equity exposure ahead of the Fed decision and the final stretch of earnings season. Sector Equity Funds led equity inflows with $3.2bn in net inflows, while Equity Income Funds (+$1.3bn) continued to draw interest as investors prioritized yield and defense. Emerging Market Equity Funds (+$0.4bn) and World Sector Equity Funds (+$0.2bn) rounded out the inflows.
On the fixed income universe, Taxable bond funds were broadly unchanged, as inflows in some classifications were offset by outflows in others. General Domestic Taxable Fixed Income Funds (+$1.4bn), High Yield Funds (+$1.2bn) and Government & Treasury Fixed Income Funds (+$1.1bn) attracted new money as investors added duration amid the Fed’s decision. The short end told the opposite story: Short/Intermediate Government & Treasury Funds (-1.5bn) and Short/Intermediate Investment Grade Funds (-$1.5bn) suffered the largest outflows in the group, followed by Emerging Markets Debt Funds (-$0.6bn) and Alternative Bond Funds (-$0.1bn). Municipals on the other hand, posted favorable inflows of $1.8bn.
Commodities (-$1.3bn) posted their largest outflow outside of money market funds, Alternative Equity Funds gathered $1bn in net new inflow
