Investors were overall net sellers of fund assets (including those of conventional funds and ETFs) for the first week in three, redeeming a net $45.2 billion for the Refinitiv Lipper fund flows week ended Wednesday, June 15.
Fund investors were net redeemers of equity funds (-$16.2 billion), taxable bond funds (-$14.6 billion – their fourth largest on record), money market funds (-$8.8 billion), and tax-exempt fixed income funds (-$5.6 billion – their third largest on record) for the week.
As inflationary concerns escalated during the fund flows week and the likelihood of a 75 basis-point (bps) interest rate hike became more likely, the broad-based indices were hammered as investors weighed the possibilities of the U.S. economy experiencing a hard landing and ending up in a recession.
On Monday, June 13, the S&P 500 declined 3.9% on the day and officially entered bear market territory – declining more than 20% from its recent market high on January 3, 2022, as markets continued to reel from unexpected inflation reports just before the then upcoming Federal Open Market Committee meeting.
On the domestic side of the equation, the Russell 2000 (-8.45% for the week, and down 22.90% YTD) posted the largest declines of the other broadly followed U.S. indices as the stock market took a beating.
It was bettered by the Nasdaq Composite (-8.17% and -29.06%, respectively). The Dow Jones Industrial Average (-6.81% and -15.60%, respectively) mitigated losses better than the other oft-followed U.S. indices, followed by the S&P 500 (-7.92% and -20.48%, respectively).
Overseas, the Shanghai Composite (+0.74% and –13.86%, respectively) posted the only plus-side returns of the other often-followed broad-based international indices, while the Xetra DAX (-9.44% and -22.29%, respectively) chalked up the weakest returns.
For the flows week, the S&P/LSTA Leverage Loan Index (-1.11% for the week and -2.79% YTD) did a better job mitigating losses than the Bloomberg U.S. Aggregate Bond Index (-2.05% and -11.70, respectively) and the Bloomberg Municipal Bond Index (-2.63% and -10.06%, respectively).
On Thursday, June 9, the DJIA and S&P 500 booked their worst one-day returns in three weeks ahead of the CPI reports due out on Friday morning on news the ECB plans to cut asset purchases and raise interest rates for the first time in more than 10 years, and on a concerning rise in first-time jobless claims.
The Department of Labor reported that first-time jobless claims rose by an unexpected 27,000 for the week prior, to a five-month high of 229,000 – stoking some investors’ concerns of a potential slowdown in economic growth. The 10-year Treasury yield rose just one bp on the day, closing at 3.04%, while front-month crude oil futures closed 0.5% lower, settling at $121.51/barrel (bbl).
The Dow tanked nearly 900 points as U.S. stocks took a one-two punch after the consumer price index (CPI) report showed a rise in inflation for May, on Friday, June 10, with all three broad-market indices posting their largest weekly declines since January.
The CPI showed U.S. inflation increased 1% in May, outpacing analyst expectations of 0.7%. The year-over-year rise of 8.6% exceeded the 40-year high witnessed in March. In other news, the University of Michigan’s preliminary June consumer sentiment gauge plummeted to 50.2 – its lowest reading since the university began collecting the data in November 1952.
The 10-year Treasury yield rose 11 bps to close at 3.15%. Front-month crude oil futures prices declined 0.7% on the day – closing at $120.67/bbl but posted a weekly gain of 1.5%.
The U.S. indices took another beating on Monday, June 13, with the S&P 500 officially entering bear market territory ahead of the Fed’s interest rate announcement scheduled for Wednesday, an expected rate hike by the Bank of England, and the surprise acceleration in inflation reported this week.
The 10-year Treasury yield leapt 28 bps to close at 3.43%, its highest close since April 20, 2011, while the U.S. dollar rose to an almost 20-year high against the ICE U.S. dollar index.
Stocks ended mixed on Tuesday, June 14, with the S&P 500 and Dow witnessing their fifth straight day of declines on the eve of the Fed’s interest rate policy announcement, with the S&P 500 declining 10.2% over the preceding five trading days.
Investors penciled in an aggressive 75 bps interest rate hike from the Fed after learning the producer price index provided additional confirmation that inflation may persist, with the price of wholesale goods and services jumping 0.8% in May. The 10-year Treasury yield rose an additional six bps to end the day at 3.49%. Front-month crude oil futures finished down 1.7% to $118.93/bbl.
The Dow and the S&P 500 snapped their five-day losing streaks, on Wednesday, June 15, after the Federal Reserve announced its largest interest rate hike since 1994 and committed to fight inflation. Stocks rallied after the Fed raised its key lending rate by 75 bps, the U.S. census Bureau announced May retail sales fell by 0.3%, and the ECB held an emergency meeting to “discuss current market conditions.” The 10-year Treasury yield declined 16 bps to 3.33% and front-month oil futures prices fell 3% to $115.31/bbl.
Exchange-Traded Equity Funds
Equity ETFs witnessed their first week of net outflows in six, handing back $8.5 billion for the most recent fund flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$4.4 billion), withdrawing money for the first week in seven, while nondomestic equity ETFs witnessed net outflows for the second week running, handing back $4.1 billion this past week.
Small-cap ETFs (+$2.3 billion) attracted the largest draw of net new money, followed by equity income ETFs (+$1.3 billion) and gold and natural resources ETFs (+$323 million). Meanwhile, large-cap ETFs (-$6.4 billion) suffered the largest net redemptions of the equity ETF macro-groups for the flows week, bettered by international equity ETFs (-$4.1 billion).
iShares Russell 2000 ETF (IWM, +$2.7 billion) and ProShares UltraPro QQQ ETF (TQQQ, +$750 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (SPY, -$5.6 billion) experienced the largest individual net redemptions and iShares Core S&P 500 ETF (IVV, -$2.2 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the first week in nine, taxable fixed income ETFs witnessed net outflows, handing back $3.9 billion this week. APs were net purchasers of government Treasury ETFs (+$4.9 billion) and government mortgage ETFs (+$302 million), while being net redeemers of corporate investment-grade debt ETFs (-$3.6 billion), corporate high-yield debt ETFs (-$2.9 billion), and flexible ETFs (-$2.1 billion).
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$2.4 billion), iShares Short Treasury Bond ETF (SHV, +$1.7 billion), and iShares iBoxx $ High Yield Corporate Bond ETF (HYG, +$1.4 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs.
Meanwhile, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD, -$2.1 billion) and SPDR Bloomberg High Yield Bond ETF (JNK, -$1.6 billion) handed back the largest individual net redemptions for the week.
For the second straight week, municipal bond ETFs witnessed net outflows, with investors redeeming $1.0 billion this week. Invesco California AMT-Free Muni Bond ETF (PWZ, +$56 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (MUB, -$450 million) experienced the largest net redemptions in the subgroup for the week.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the nineteenth week in a row – redeeming $7.8 billion – with the macro group recording an average market loss of 6.95% for the fund flows week.
Domestic equity funds, suffering net redemptions of slightly more than $3.8 billion, also witnessed their nineteenth consecutive week of net outflows while chalking up a 7.03% market loss on average for the fund flows week. Nondomestic equity funds – posting a 6.77% weekly loss on average – observed their tenth straight week of net outflows, handing back $4.0 billion this week.
On the domestic equity side, fund investors were net purchasers of the commodities heavy, sector-other funds (+$147 million) and gold and natural resources funds (+$13 million), while being net redeemers of large-cap funds (-$1.7 billion) and small-cap funds (-$730 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$3.2 billion) and global equity funds (-$795 million) for the week.
Conventional Fixed Income Funds
For the twenty-first week in a row, taxable bond funds (ex-ETFs) witnessed net outflows – handing back $10.7 billion this past week – while posting a 2.98% loss on average for the fund flows week, their fifth worst weekly return going back to January 8, 1992, when Lipper began tracking weekly flows.
None of the conventional fund fixed income macro groups witnessed net inflows; however, corporate investment grade debt funds (-$5.2 billion), corporate high-yield funds (-$2.8 billion), and balanced funds (-$929 million) suffered the largest net redemptions.
The municipal bond funds group posted a 3.11% loss on average during the week (the third largest weekly decline on record) and witnessed its fifth consecutive weekly net outflows, handing back $4.6 billion this week, its third largest on record and largest since the week ended March 25, 2020.
General & Insured Municipal Debt Funds (-$2.1 billion) and High Yield Municipal Debt Funds (-$1.4 billion) experienced the largest net outflows of the group. Year to date, the municipal bond funds macro group handed back $83.3 billion – witnessing the largest net redemption thus far of any full year dating back to 1992 when Lipper began calculating weekly estimated net flows.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.