Investors were net sellers of fund assets (including those of conventional funds and ETFs) for the second week in three, redeeming a net $15.7 billion for the LSEG Lipper fund-flows week ended Wednesday, February 7, 2024.
Fund investors were net purchasers of fixed-income funds (+$2.9 billion) and alternatives funds (+$291 million) while being net sellers of mixed-assets funds (-$136 million), commodity funds (-$457 million), money market funds (-$955 million), and equity funds (-$17.3 billion) for the week.
Market Wrap-Up
Despite Federal Reserve officials putting the kibosh on interest rate cuts in March, U.S. indices hit new record highs during the Lipper fund-flows week as better-than-expected Q4 earnings and a blowout nonfarm payrolls report were the primary focus for investors as a soft landing or no landing of the U.S. economy has become more likely.
On the domestic equity side of the equation, the Nasdaq Composite (+3.91%) posted the strongest return of the often-followed broad-based U.S. indices, followed by the S&P 500 (+3.08%) and the Dow Jones Industrial Average (+1.38%). The Russell 2000 (+0.15%) posted the smallest gains of the group. Overseas, the Shanghai Composite (+1.28%) moved to the top of the leaderboard of the often-followed broad-based international indices, followed by the FTSE 100 (-0.83%) and the DAX Total Return Index (-0.86%). Meanwhile, the Nikkei 225 (-1.66%) posted the largest losses of the subgroup for the flows week.
The Morningstar LSTA U.S. Leveraged Loan Index (+0.13%) outperformed the Bloomberg Municipal Bond Index (-0.15%) and the Bloomberg U.S. Aggregate Bond Index (-0.85%) for the fund-flows week.
For the week, Treasury yields rose at the mid-to-long end of the curve, with the five- and seven-year yields witnessing the largest increases, rising 15 basis points (bps) and 14 bps, respectively, to 4.06% and 4.09%. The 10-year Treasury yield rose 10 bps for the week—settling at 4.09%. The 1-month Treasury yield witnessed the only decline, falling six bps to 5.47%. The U.S. Treasury yield curve remained inverted, with the two- and 10-year Treasury yield spread (-32 bps) widening by four bps during the week.
On Thursday, February 1, U.S. stocks snapped their worst two-day decline since October as investors awaited Q4 earnings reports from three mega-cap tech firms after the bell. The Dow closed the day at a record high despite new regional bank concerns after New York Community Bancorp (NYSE:NYCB) highlighted difficulties in commercial real estate and after Fed Chair Jerome Powell stated a March interest rate cut was “not the most likely case or the base case” following the FOMC policy-setting meeting on Wednesday. First-time jobless claims rose to an almost three-month high to 224,000 for the week prior, perhaps signaling a softening in the U.S. labor market; however, several analysts attributed the new claims to seasonal hiring for the holidays. The 10-year Treasury yield declined 12 bps on the day to close at 3.87%.
The Dow and the S&P 500 posted their ninth and seventh record close of 2024 on Friday, February 2, after stronger-than-expected Q4 tech earnings and the Bureau of Labor Statistics reported that the U.S. economy added a whopping 353,000 new jobs in January, handily beating analysts’ expectations of 185,000—signaling to investors the likelihood of a March rate cut is very unlikely. While the unemployment rate remained unchanged at 3.7%, hourly wages rose 0.6% in January, the biggest increase in a little less than two years. The 10-year Treasury yield rose 16 bps to finish the day at 4.03%.
The Dow closed down 270 points on Monday, February 5, after Fed Chair Powell reiterated over the weekend there is no rush to cut rates. Supporting that assertion, the Institute of Supply Management said its service index climbed to 53.3% in January from a seven-month low of 50.5% the month before. The 10-year Treasury yield rose 14 bps to finish the day at 4.17%.
U.S. stocks ended moderately higher on Tuesday, February 6, as investors reevaluated their expectations for interest rate cuts and Chinese stocks got a shot in the arm after authorities and financial regulators signaled their resolve to support the troubled markets. The 10-year Treasury yield declined eight bps on the day to 4.09%.
Both the Dow and S&P 500 posted record closing highs on Wednesday, February 7, after investors refocused their attention on the Q4 corporate earnings season, with Uber Technologies (NYSE:UBER) and CVS Health Corp (NYSE:CVS) both beating earnings expectations. Although regional bank concerns remained present after U.S. Treasury Secretary Janet Yellen said she is concerned about real estate exposure at smaller banks the day before. The 10-year Treasury remained unchanged to close out the fund-flows week at 4.09%.
Exchange-Traded Equity Funds
Equity ETFs witnessed net outflows for the first week in three, handing back $11.6 billion for the most recent fund-flows week (their largest net outflows since June 28, 2023). Authorized participants (APs) were net sellers of domestic equity ETFs (-$13.1 billion), handing back money also for the first week in three, while nondomestic equity ETFs witnessed net inflows for the seventh week in a row, taking in $1.5 billion this past week.
Large-cap ETFs (-$9.2 billion) suffered the largest net outflows of the equity ETF macro-groups for the fund-flows week, bettered by sector equity ETFs (-$2.6 billion) and small-cap ETFs (-$1.9 billion). Meanwhile, emerging markets equity ETFs (+$687 million) observed the largest net inflows, followed by the equity income ETFs (+$466 million) and developed international markets ETFs (+$450 million) macro-groups.
Exchange-Traded Alternatives, Commodities, and Mixed-Assets Funds
Of the other equity-based macro-classifications, alternatives ETFs (+$268 million) and mixed-assets ETFs (+$35 million) witnessed net inflows, while the commodities ETFs (-$477 million) macro-classification suffered the only net redemption for the week.
iShares Core S&P 500 ETF (NYSE:IVV) (IVV, +$1.7 billion) and Jpmorgan Global Select Equity ETF (NASDAQ:JGLO) (JGLO, +$940 million) 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, -$11.0 billion) experienced the largest individual net redemptions and iShares Russell 2000 ETF (NYSE:IWM) (IWM, -$2.7 billion) suffered the second largest net redemptions of the week.
Exchange-Traded Fixed Income Funds
For the seventh consecutive week, taxable fixed income ETFs experienced net inflows, although taking in just $368 million this week. APs were net purchasers of government & Treasury fixed Income ETFs (+$993 million), short/intermediate investment-grade ETFs (+$753 million), and high-yield ETFs (+$401 million) while being net redeemers of short/intermediate government & Treasury ETFs (-$2.2 billion) and emerging markets debt ETFs (-$120 million).
iShares Core U.S. Aggregate Bond ETF (NYSE:AGG) (AGG, +$722 million), iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF (TLT, +$677 million), and iShares Bitcoin Trust (NASDAQ:IBIT) (IBIT, +$571 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR® Bloomberg 1-3 Month T-Bill ETF (NYSE:BIL) (BIL, -$1.9 billion) and iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) (LQD, -$835 million) handed back the largest individual net redemptions for the week.
Municipal bond ETFs witnessed net outflows for the second week in three, handing back $423 million this week. JPMorgan Municipal (NYSE:JMUB) (JMUB, +$28 million) witnessed the largest draw of net new money of the municipal bond ETFs, while iShares National Muni Bond ETF (NYSE:MUB) (MUB, -$281 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-fourth week in a row—redeeming $5.8 billion—with the macro-group posting a 1.48% market return for the fund-flows week. Domestic equity funds—suffering net redemptions of slightly more than $5.3 billion—witnessed their one hundred-and-fifth consecutive week of net outflows while posting a 1.64% market rise on average for the fund-flows week. Non-domestic equity funds—posting a 1.09% weekly market gain on average—observed their forty-eighth week of net outflows in a row, handing back slightly more than $408 million this week.
On the domestic equity side, fund investors were net redeemers of large-cap funds (-$1.6 billion), multi-cap funds (-$1.4 billion), and mid-cap funds (-$886 million). Investors on the nondomestic equity side were net sellers of emerging markets equity funds (-$178 million), developed global markets funds (-$141 million), and world sector equity funds (-$74 million) for the week.
Conventional Alternatives, Commodities, and Mixed-Assets Funds
The conventional alternatives funds (+$24 million) and commodities funds (+$2 million) macro-classifications were attractors of net new money of the other equity-based macro-classifications, while the mixed-assets funds (-$171 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 sixth week in a row, taking in $2.7 billion this past week—while posting a 0.43% 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 $2.1 billion—followed by general domestic taxable fixed income funds (+$258 million) and alternative bond funds (+$230 million). World income funds (-$105 million) suffered the largest net redemptions, bettered by emerging markets debt funds (-$97 million) and short/intermediate Government & Treasury funds (+$8 million).
The municipal bond funds group posted a 0.21% market loss on average during the fund-flows week (their fourth weekly market decline in five), but witnessed net inflows for the sixth consecutive week, taking in $322 million this week. The High Yield Municipal Debt Funds (+$335 million) and Intermediate Municipal Debt Funds (+$75 million) classifications witnessed the largest net inflows of the group. The General & Insured Municipal Debt Funds classification witnessed the largest net outflows of the group—handing back $93 million—bettered by Short Municipal Debt Funds (-$60 million).