Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the seventh week in a row, injecting a net $52.8 billion for the LSEG Lipper fund-flows week ended Wednesday, December 6, but the headline figure is a bit misleading.
Fund investors were net purchasers of money market funds (+$54.7 billion) and equity funds (+$663 million) while being net redeemers of mixed-assets funds (-$1.0 billion), fixed income funds (-$837 million), alternatives funds (-$370 million), and commodity funds (-$275 million) for the week.
Market Wrap-Up
After a strong runup in both equity and fixed-income securities in November—helped by a 51 basis-point (bps) decline in the 10-year Treasury yield for the month—some equity investors decided to take a slight breather during the first week of December. This would give them the chance to review the November nonfarm payrolls report due out later in the week and the Federal Reserve Board’s December interest-rate decision and comments slated for release on December 13. According to the CME FedWatch Tool, fed funds futures traders are pricing in a 97.5% probability that the Fed will hold its current target rate steady between 5.25% and 5.50%.
On the domestic equity side of the equation, the Russell 2000 (+2.67%) posted the strongest return of the often-followed broad-based U.S. indices, followed by the Dow Jones Industrial Average (+1.76%) and the S&P 500 (-0.03%). The Nasdaq Composite (-0.78%) posted the largest losses of the group. Overseas, the DAX Total Return Index (+1.30%) remained at the top of the leaderboard of the often-followed broad-based international indices, followed by the FTSE 100 (+0.41%) and the Nikkei 225 (+0.50%). Meanwhile, the Shanghai Composite (-2.20%) posted the only losses of the subgroup for the flows week.
The Bloomberg U.S. Aggregate Bond Index (+1.14%) outperformed the Bloomberg Municipal Bond Index (+0.92%) and the Morningstar LSTA U.S. Leveraged Loan Index (+0.29%) for the fund-flows week.
For the week, the Treasury yield curve generally shifted down, with the {{1-month yield witnessing the only increase, rising just one bp. The 10-year Treasury yield dropped another 15 bps for the week—settling at 4.12% (its lowest closing value since August 31). The U.S. Treasury yield curve remained inverted, with the 2-year and 10-year Treasury yield spread (-48 bps) widening by 11 bps during the week.
On Thursday, November 30, the Dow rose 520 points to chalk up its highest closing value in nearly two years as U.S. stocks posted their best monthly returns in more than a year—helped by a deceleration in inflation, declining bond yields, and hopes for rate cuts in 2024. Investors were cheered by a report that showed inflation continued to ease in October. The Fed’s preferred inflationary measure, the core personal consumption expenditure price index, was up year over year 3.5% in October, compared to 3.7% in September. On the employment front, first-time jobless claims ticked higher for the week prior—signaling the U.S. labor market continues to cool—with new claims climbing 7,000 to 218,000.
U.S. stocks continued their ascent on Friday, December 1, with the Dow Jones Industrial Average closing above the 36,000-mark for the first time since January 13, 2022. The three major broad-based indices posted their fifth consecutive week of plus-side returns despite the Institute for Supply Management (ISM) reporting the November Manufacturing Purchasing Manager Index contracted for the thirteenth consecutive month—at the same rate as reported in October (46.7%). Despite these encouraging metrics, Federal Reserve Chair Jerome Powell said, “We are prepared to tighten policy further if it becomes appropriate to do so.” Nonetheless, the 10-year Treasury yield fell 15 bps on the day to 4.22%.
The three U.S. broad-based indices ended lower on Monday, December 4, with the Russell 2000 bucking the trend—rising 1.04%—as investors tempered their recent enthusiasm for a potential early 2024 interest rate cut after the strong equity rally in November and ahead of employment data due out on Friday. The 10-year Treasury yield rose six bps to 4.28%.
The DJIA and S&P 500 posted small back-to-back losses on Tuesday, December 5, after the Department of Labor reported that job openings in the U.S. fell in October to a 28-month low of 8.7 million from a revised 9.4 million in October—adding further evidence that the labor market is cooling. In other news, the ISM services barometer rebounded to 52.7% in November from 51.8% in October, beating analyst expectations of 52.4%. Moody’s downgrade of China’s government credit ratings highlighted the struggles facing the world’s second-largest economy and weighed on its local indices, with the Shanghai Composite declining 1.79% on the day. The 10-year Treasury yield declined 10 bps to 4.18%.
U.S. stocks finished lower on Wednesday, December 6, after ADP reported a weaker-than-expected private sector jobs figure, with U.S. businesses adding 103,000 new jobs in November, missing analysts’ expectations of 128,000. The 10-year Treasury yield declined six bps to close out the fund-flows week at 4.12%—its lowest closing value since August 31. Fed fund futures traders were pricing in a 61.8% probability the Fed will cut its target lending rate by March, according to the CME Group (NASDAQ:CME).
Exchange-Traded Equity Funds
Equity ETFs witnessed net inflows for the tenth consecutive week, attracting a little less than $10.0 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$10.5 billion), injecting money also for the tenth week in a row, while nondomestic equity ETFs witnessed net outflows for the first week in five, handing back $526 million this past week.
Domestic sector equity ETFs (+$3.8 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by large-cap ETFs (+$3.0 billion) and multi-cap ETFs (+$1.6 billion). Meanwhile, developed international markets ETFs (-$527 million) suffered net outflows, bettered by the world sector equity ETFs (-$20 million) and developed global markets ETFs (+$7 million) macro-groups.
Exchange-Traded Alternatives, Commodities, and Mixed-Assets Funds
Alternatives ETFs (+$156 million) witnessed the largest net inflows of the other equity-based macro-classifications, followed by the mixed-assets ETFs (+$53 million) and commodity ETFs (-$193 million) macro-classifications for the week.
SPDR S&P 500 ETF Trust (ASX:SPY) (SPY, +$6.8 billion) and iShares Russell 2000 ETF (NYSE:IWM) (IWM, +$1.0 billion) attracted the largest amounts of net new money of all individual equity and equity-based ETFs. At the other end of the spectrum, iShares MSCI USA Quality Factor ETF (NYSE:QUAL) (QUAL, -$2.9 billion) experienced the largest individual net redemptions and iShares MSCI USA Min Vol Factor ETF (NYSE:USMV) (USMV, -$1.2 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 experienced net outflows, handing back $1.7 billion this week. APs were net purchasers of high-yield ETFs (+$1.5 billion), emerging markets debt ETFs (+$828 million), and government & Treasury fixed income ETFs (+$274 million) while being net redeemers of short/intermediate government & Treasury ETFs (-$3.7 billion) and general domestic taxable fixed income ETFs (-$684 million).
iShares J.P. Morgan USD Emerging Markets Bond ETF (NASDAQ:EMB) (EMB, +$853 million), iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) (HYG +$829 million), and US Treasury 3 Month Bill ETF (NASDAQ:TBIL) (TBIL, +$821 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) (SHY, -$1.5 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) (LQD, -$1.5 billion) handed back the largest individual net redemptions for the week.
Municipal bond ETFs witnessed net outflows for the first week in 13 but handed back just $6 million this week. iShares National Muni Bond ETF (NYSE:MUB) (MUB, +$104 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares iBonds Dec 2023 Term Muni Bond ETF (NYSE:IBML) (IBML, -$391 million) experienced the largest net redemptions in the subgroup.
Conventional Equity Funds
Conventional fund (ex-ETF) investors were net sellers of equity funds for the ninety-fifth week in a row—redeeming $9.3 billion—with the macro-group posting a 0.48% market return for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly less than $6.8 billion (their largest weekly net outflows since December 21, 2022)—witnessed their ninety-sixth consecutive week of net outflows while posting a 0.83% market rise on average for the fund-flows week. Non-domestic equity funds—posting a 0.04% weekly market loss on average—observed their thirty-ninth week of net outflows in a row, handing back slightly less than $2.6 billion this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$2.8 billion), mid-cap funds (-$1.2 billion), and equity income funds (-$1.0 billion). Investors on the nondomestic equity side were net sellers of developed international markets funds (-$1.5 billion) and world sector equity funds (-$428 million) for the week.
Conventional Alternatives, Commodities, and Mixed-Assets Funds
Commodities funds (-$82 million) witnessed the smallest net outflows of the other equity-based macro-classifications, followed by the alternative equity funds (-$526 million) and mixed-assets funds (-$1.1 billion) macro-classifications for the week.
Conventional Fixed Income Funds
Taxable bond funds (ex-ETFs) witnessed net inflows for the first week in 13, taking in $987 million this past week—while posting a 0.79% market return on average for the fund-flows week. The short/intermediate investment-grade funds macro-group witnessed the largest net inflows for the week—taking in $715 million, followed by high-yield funds (+$525 million) and short/intermediate government and treasury funds (+$125 million). Government & Treasury fixed income funds (-$390 million) suffered the largest net redemptions, bettered by emerging markets debt funds (-$93 million) and world income funds (-$52 million).
The municipal bond funds group posted a 0.90% market gain on average during the fund-flows week (their sixth weekly market rise in a row) but suffered net outflows for the eighteenth consecutive week, handing back $139 million this week. The General & Insured Municipal Debt Funds (+$162 million) and California Municipal Debt Funds (+$63 million) classifications witnessed the largest net inflows of the group. The Intermediate Municipal Debt Funds classification witnessed the largest net outflows of the group, handing back $98 million, bettered by Short Municipal Debt Funds (-$89 million).