Investors were net sellers of fund assets (including those of conventional funds and ETFs) for the second week in three, redeeming a net $6.6 billion for the LSEG Lipper fund-flows week ended Wednesday, January 24, 2024.
Fund investors were net purchasers of fixed income funds (+$3.9 billion), commodity funds (+$220 million), and alternatives funds (+$68 million) while being net sellers of money market funds (-$8.7 billion), equity funds (-$1.8 billion), and mixed-assets funds (-$352 million) for the week.
Market Wrap-Up
U.S. stocks began a fresh ascent to new record highs during the Lipper fund-flows week as better-than-expected Q4 earnings were announced by a few mega-cap technology stocks and investors’ increasing optimism around artificial intelligence.
On the domestic equity side of the equation, the Nasdaq Composite (+4.22%) posted the strongest return of the often-followed broad-based U.S. indices, followed by the S&P 500 (+2.73%) and the Russell 2000 (+2.55%). The Dow Jones Industrial Average (+1.45%) posted the smallest gains of the group. Overseas, the DAX Total Return Index (+3.28%) moved to the top of the leaderboard of the often-followed broad-based international indices, followed by the Nikkei 225 (+3.13%) and the FTSE 100 (+1.86%). Meanwhile, the Shanghai Composite (-0.01%) posted the only losses of the subgroup for the flows week.
The Morningstar LSTA U.S. Leveraged Loan Index (+0.10%) outperformed the Bloomberg U.S. Aggregate Bond Index (-0.36%) and the Bloomberg Municipal Bond Index (-0.53%) for the fund-flows week.
For the week, the Treasury yield rose at the long end of the curve, with the 20-year and 30-year yields witnessing the largest increases, rising 10 basis points (bps) to 4.52% and 4.41%, respectively. The 10-year Treasury yield rose eight bps for the week—settling at 4.18%. The 2-Month and 3-month Treasury yields witnessed the largest declines, falling three bps to 5.44% (each). The U.S. Treasury yield curve remained inverted, with the 2-year and 10-year Treasury yield spread (-16 bps) narrowing by eight bps during the week.
On Thursday, January 18, U.S. stocks clawed back losses witnessed earlier in the week as the Dow snapped a three-day losing streak on the heels of a better-than-expected Q4 earnings report and guidance from Taiwan Semiconductor Manufacturing Co. (TSM), which helped chip makers and other tech-oriented issues rally on the day. However, a strong December retail sales report earlier in the week along with economic data that showed first-time jobless claims fell to a 16-month low dampened investor enthusiasm that the Federal Reserve Board will cut its key lending rate any time soon. First-time jobless claims fell to 187,000 for the week prior, signaling layoffs remain at record lows. The 10-year Treasury yield rose four bps on the day to close at 4.14%.
The S&P 500 closed at its first record high in just a little more than two years on Friday, January 19, as stock market investors continued to price in a soft-landing for the U.S. economy. Semiconductor issues got another shot in the arm after Super Micro Computer Inc. (NASDAQ:SMCI) released updated financial guidance, which surpassed its prior outlook. In other news, the University of Michigan reported that its preliminary consumer sentiment gauge for January rose to 78.8 (its highest level since July 2021) from 69.7 the month before. The 10-year Treasury yield rose one bp to finish the day at 4.15%.
The Dow closed above the 38,000 mark for the first time in history on Monday, January 22, as fourth-quarter earnings reports ramp up. The Conference Board’s leading economic index for the U.S. fell for the twenty-first consecutive month in December to 0.1% but beat analysts’ expectation of a 0.3% decline. The 10-year Treasury yield fell four bps to finish the day at 4.11%.
U.S. stocks ended mixed on Tuesday, January 23, as investors kept a keen eye on the Q4 earnings season. The Dow closed below 38,000, possibly linked to a 3M (MMM) selloff after it released a profit warning that was well below analysts’ forecasts even though its Q4 earnings outpaced expectations. The 10-year Treasury yield crept up three bps on the day.
While the Dow ended lower, the S&P 500 just managed to post its fourth straight record close on Wednesday, January 24, as investors digested another round of better-than-expected tech-related earnings reports. In other news, the S&P flash U.S. services and manufacturing PMI reports for January rose to seven-month and 15-month highs, respectively, of 59.2 and 50.3, fanning concerns that the Fed may not be willing to start cutting rates in March as many investors may have anticipated. The 10-year Treasury rose four bps to close out the fund-flows week at 4.18%.
Exchange-Traded Equity Funds
Equity ETFs witnessed net inflows for the first week in three, taking in $2.1 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$1.4 billion), attracting money also for the first week in three, while nondomestic equity ETFs witnessed net inflows for the fifth week in a row, taking in $717 million this past week.
Large-cap ETFs (+$3.6 billion) observed the largest net inflows of the equity ETF macro-groups for the fund-flows week, followed by equity income ETFs (+$1.0 billion) and developed global markets ETFs (+$672 million). Meanwhile, multi-cap ETFs (-$2.8 billion) suffered the largest net outflows, bettered by the small-cap ETFs (-$901 million) and emerging markets equity ETFs (-$521 million) macro-groups.
Exchange-Traded Alternatives, Commodities, and Mixed-Assets Funds
Of the other equity-based macro-classifications, commodities ETFs (+$178 million) and mixed-assets ETFs (+$64 million) witnessed net inflows, while the alternatives ETFs (-$61 million) macro-classification suffered the only net redemption for the week.
Invesco QQQ Trust Series 1 (NASDAQ:QQQ) (QQQ, +$2.8 billion) and iShares Core S&P 500 ETF (NYSE:IVV) (IVV, +$2.3 billion) attracted the largest amounts of net new money of all individual equity and equity-based ETFs. At the other end of the spectrum, SPDR S&P 500 ETF Trust (ASX:SPY) (SPY, -$3.6 billion) experienced the largest individual net redemptions and Invesco S&P 500® Equal Weight ETF (NYSE:RSP) (RSP, -$1.4 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the fifth consecutive week, taxable fixed-income ETFs experienced net inflows, taking in $2.1 billion this week. APs were net purchasers of short/intermediate government & Treasury debt ETFs (+$3.1 billion), alternative bond ETFs (+$220 million), and short/intermediate investment-grade debt ETFs (+$122 million) while being net redeemers of general domestic taxable fixed income ETFs (-$629 million) and emerging markets debt ETFs (-$436 million).
US Treasury 3 Month Bill ETF (NASDAQ:TBIL) (TBIL, +$2.8 billion), iShares Bitcoin Trust (NASDAQ:IBIT) (IBIT, +$1.1 billion), and Fidelity Wise Origin Bitcoin Fund (NYSE:FBTC) (FBTC, +$1.1 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, Grayscale Bitcoin Trust (BTC) (NYSE:GBTC) (GBTC, -$2.7 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) (LQD, -$1.9 billion) handed back the largest individual net redemptions for the week.
Municipal bond ETFs witnessed net outflows for the third week in four, handing back $323 million this week. AB Tax-Aware Short Duration ETF (NYSE:TAFI) (TAFI, +$21 million) witnessed the largest draw of net new money of the municipal bond ETFs, while VanEck High Yield Muni ETF (HYD, -$179 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 one hundred-and-second week in a row—redeeming $3.9 billion—with the macro-group posting a 2.27% market return for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly more than $3.5 billion—witnessed their one hundred-and-third consecutive week of net outflows while posting a 2.54% market rise on average for the fund-flows week. Non-domestic equity funds—posting a 1.77% weekly market gain on average—observed their forty-sixth week of net outflows in a row, handing back slightly less than $408 million this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$2.2 billion), equity income funds (-$568 million), and multi-cap funds (-$422 million). Investors on the nondomestic equity side were net sellers of emerging markets equity funds (-$210 million), developed global markets funds (-$115 million), and developed international markets funds (-$87 million) for the week.
Conventional Alternatives, Commodities, and Mixed-Assets Funds
The conventional alternatives funds (+$129 million) and commodities funds (+$42 million) macro-classifications were attractors of net new money of the other equity-based macro-classifications, while the mixed-assets funds (-$416 million, excluding funds of funds) macro-group witnessed net redemptions for the week.
Conventional Fixed Income Funds
Taxable bond funds (ex-ETFs) witnessed net inflows for the fourth week in a row, taking in $1.7 billion this past week—while posting a 0.07% market decline on average for the fund-flows week. The short/intermediate investment-grade debt funds macro-group witnessed the largest net inflows for the week—taking in $1.1 billion—followed by high-yield funds (+$436 million) and general domestic taxable fixed income funds (+$185 million). Short/intermediate Government & Treasury funds (-$85 million) suffered the largest net redemptions, bettered by emerging markets debt funds (-$64 million) and government & Treasury fixed income funds (-$51 million).
The municipal bond funds group posted a 0.50% market loss on average during the fund-flows week (their third weekly market decline in a row), witnessing net outflows also for the third consecutive week, handing back $534 million this week. The High Yield Municipal Debt Funds (+$461 million) and Intermediate Municipal Debt Funds (+$121 million) classifications witnessed the largest net inflows of the group. The Short Municipal Debt Funds classification witnessed the largest net outflows of the group—handing back $107 million—bettered by California Short/Intermediate Municipal Debt Funds (-$12 million).