During Refinitiv Lipper’s fund flows week ended October 12, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the third straight week, removing a net $2.3 billion.
Money market funds (+$7.6 billion) were the only macro group to attract funds, while taxable bond funds (-$4.8 billion), equity funds (-$2.7 billion), and tax-exempt funds (-$2.3 billion) posted outflows.
At the close of Refinitiv Lipper’s fund flows week, the Nasdaq (-6.56%) logged negative weekly performance for the seventh week in eight, while the Russell 2000 (-4.25%), S&P 500 (-5.45%), and DJIA (-3.51%) realized negative performance for the sixth time in the past eight weeks.
The Bloomberg Municipal Bond Total Return Index (+0.24%) posted plus-side performance for the second straight week after suffering eight consecutive weeks of depreciation. The Bloomberg U.S. Aggregate Bond Total Return Index (-1.12%) ended the week in the red for the tenth consecutive week.
Overseas, both the DAX 30 (-4.29%) and FTSE 100 (-4.69%) traded negative for the seventh week in nine, while the Nikkei 225 (-4.05%) and Shanghai Composite (-0.98%) have observed six weeks of sub-zero performance over the past nine.
The 10-two Treasury yield spread remained negative (-0.39), marking the seventy-second straight trading session with an inverted yield curve. As of Wednesday, October 12, investors will receive greater compensation for investing in the two-year Treasury note (4.29%) than the 10-year (3.90%).
According to Freddie Mac, the 30-year fixed-rate average (FRM) increased for the seventh week in eight – currently at 6.92% and its highest level since April 2002. Both the United States Dollar Index (DXY, +2.02%) and the VIX (+14.95%) increased over the course of the week.
Our fund flows week kicked off Thursday, October 6, with the September 2022 Challenger Job Cuts Report showing U.S.-based employers cut 29,989 jobs in September. This was a 46.4% increase from August cuts and a 67.6% increase from last September.
September was the fifth time this year that job cuts increased month over month. Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc., said, “Some cracks are beginning to appear in the labor market. Hiring is slowing and downsizing events are beginning to occur.”
The Department of Labor (DoL) published its weekly unemployment report highlighting seasonally adjusted weekly unemployment claims increased by 9,000 to 228,000. Equity markets tumbled on the day – DJIA (-1.15%), S&P 500 (-1.02%), Nasdaq (-0.68%), and Russell 2000 (-0.58%).
U.S. equity indices ended the calendar week on October 7 with Refinitiv Proprietary Research reporting that third quarter 2022 earnings are expected to be positive 4.1% excluding the energy sector earnings which are forecasted as negative 2.6%.
The Bureau of Labor Statistics also published its monthly nonfarm payrolls report which indicated a 263,000 increase in September, as the unemployment rate decreased to 3.5%. Both the labor force participation rate (62.3%) and the employment-population ratio (60.1%) were unchanged and remain 1.1% below their February 2020 values.
Also released on Friday was the Federal Reserves’ G.19 report on consumer credit detailing an 8.3% increase in total consumer credit, now at $4.7 trillion, while card balance increased 18.1% annualized. The August increase in credit card balances comes following an 11.7% and 16.9% increase in July and June, respectively. Equity markets struggled again – Nasdaq (-3.80%), Russell 2000 (-2.87%), S&P 500 (-2.80%), and DJIA (-2.11%).
On Monday, October 10, news came out of the United Kingdom that the Bank of England (BoE) will increase its debt markets intervention. The quantitative easing program expanded to 10 billion pounds per day until Friday – the program is designed to lower yields and now includes an allocation to index-linked gilts.
Bond markets were closed for Columbus Day. Fed Reserve Bank of Chicago President Charles L. Evans gave a speech on Monday where he spoke to the current economic landscape highlighting not only how important Fed action is but also how Fed action is perceived by households and private businesses.
“Inflation will be much more difficult to rein in if households and businesses start thinking outsized increases in wages and prices are the new norm and incorporate those expectations into their decision-making. But the good news is that, in general, measures of longer-horizon inflation expectations have remained within a range that is consistent with our two-percent inflation objective,” Evans said. “These perceptions can change and aren’t something we can take for granted. I believe the Federal Reserve’s strong policy actions and communications have played an important role in anchoring long-run inflation expectations by demonstrating and conveying our commitment to bring inflation back into line with our two-percent average objective. The public and markets appear to believe we will be successful. But it is up to us to follow through and do our job.”
Equity markets logged their fourth straight daily session in the red, with the Nasdaq (-1.04%) realizing the largest loss.
On Tuesday, October 11, the International Monetary Fund (IMF) lowered its forecast for global economic growth for 2023. The IMF’s outlook fell from a 2.9% gain to 2.7% with a one-in-four probability global growth could fall below 2%.
This forecast marks the weakest estimate since 2001 excluding the global financial crisis and the COVID-19 pandemic. The DoL also proposed a new regulation that would ask companies to reclassify how they distinguish between independent contractors and full-time employees.
Stock prices fell in many “gig economy” companies such as Lyft (LYFT), Uber Technologies (UBER), and DoorDash (DASH). The Nasdaq (-1.10%) fell for the fifth straight day, while the DJIA (+0.12%) and Russell 2000 (+0.06%) reported gains for the first daily session in five.
Our fund flows week wrapped up Wednesday, October 12, with the Bureau of Labor Statistics publishing the September Producer Price Index (PPI) report. Last month’s PPI for final demand increased 0.4% month over month, following declines of 0.2% in August and 0.4% in July.
Over the trailing 12 months, the PPI for final demand increased by 8.5%. The Mortgage Bankers Association (MBA) reported that the seasonally adjusted Purchase Index decreased by 2.0% from last week and 39% from the same week last year.
Market participants read through the Fed meeting minutes ahead of Thursday’s September Consumer Price Index (CPI) report. The minutes showed officials continued to stand by their hawkish stance and that there was consensus to continue on the rate-hiking path as there is “little sign so far of abating” inflation.
The market is forecasting another 1.25% increase in the federal funds rate by the end of the year. Currently, the target range is 3.0% to 3.25%. Equity markets traded slightly down on the day, led by the S&P 500 (-0.33%). The 10-year Treasury yield (-0.94%) fell for the first trading day in five.
Exchange-Traded Equity Funds
Exchange-traded equity funds recorded $4.6 billion in weekly net inflows, marking their third week in four reporting an inflow. The macro group posted a negative return of 5.13% on the week, their seventh week of sub-zero returns in eight.
Growth/value large cap ETFs (+$3.1 billion), growth/value small cap ETFs (+$1.1 billion), and equity income fund ETFs (+$957 million) were the largest equity ETF subgroups to post inflows this week.
Growth/value large cap ETFs reported their fourth straight weekly inflow despite realizing their fourth negative weekly performance in five. Growth/value small cap ETFs have now logged two straight weeks of inflows as they attracted their largest weekly inflow in nearly two months.
Sector other ETFs (-$836 million), sector-financial/banking ETFs (-$495 million), and sector technology ETFs (-$405 million) were the largest outflow subgroups under the macro group.
Sector other ETFs reported their fourth straight weekly outflow as their four-week outflow moving average extends to 17 consecutive weeks. The subgroup reported their third weekly performance (-2.85%) in the red over the past four weeks.
Over the past fund flows week, the top three equity ETF flow attractors were SPDR S&P 500 ETF (SPY, +$1.1 billion), iShares: Russell 1000 ETF (IWB, +$492 million), and iShares: Core S&P 500 ETF (IVV, +$465 million),
Meanwhile, the bottom three equity ETFs in terms of weekly outflows were Select Sector: Financials Sector SPDR (XLF, -$548 million), iShares: MSCI USA Minimum Volatility Factor ETF (USMV, -$322 million), and iShares: Expand Technology-Software Sector ETF (IGV, -$319 million).
Exchange-Traded Fixed Income Funds
Exchange-traded fixed income funds observed a net $1.7 billion weekly inflow – the macro group’s second straight weekly inflow. Fixed income ETFs reported a weekly return of negative 0.52% on average, its tenth week straight realizing a negative return.
Corporate high yield ETFs (-$690 million), flexible funds ETFs (-$568 million), and government mortgage ETFs (-$189 million) posted the largest outflows under taxable fixed income ETFs. Corporate high yield ETFs suffered their third weekly outflow in four while their four-week flow moving average has registered outflows in six of the last seven weeks.
The subgroup observed a negative 1.30% on the week. Flexible fund ETFs logged their fourth consecutive weekly outflow despite having plus-side performance in six of the last eight weeks.
Government Treasury ETFs (+$3.3 billion) and corporate investment grade ETFs (+$57 million) logged the only weekly inflows under taxable fixed income subgroups. Government Treasury ETFs have observed their seventh consecutive week of inflows.
This subgroup has only registered outflows in its four-week flow moving average in four of its last 74 weeks. Government-Treasury ETFs have also suffered 10 straight weeks of sub-zero performance (-0.49%).
Municipal bond ETFs reported an $842 million inflow over the week, marking their second weekly inflow in as many weeks. The subgroup realized a positive 0.18% on average, their second straight week in the black.
iShares: 20+ Treasury Bond ETF (TLT, +$933 million) and SPDR Bloomberg 1-3 Months T-Bill ETF (BIL, +$681 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.
On the other hand, ProShares: UltraPro Short QQQ ETF (SQQQ, -$595 million) and SPDR Bloomberg High Yield Bond ETF (JNK, -$388 million) suffered the largest weekly outflows under all taxable fixed income ETFs.
Conventional Equity Funds
Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$7.4 billion) for the thirty-sixth straight week. This led the macro group to post its largest four-week outflow moving average since December 2021. Conventional equity funds posted a weekly return of negative 5.28%.
International equity funds (-$3.1 billion), conventional growth/value-large cap funds (-$1.2 billion), and growth/value-small cap funds (-$1.1 billion) were the largest subgroup outflows under conventional equity funds.
International equity funds have suffered 26 straight weeks of outflows and are on pace for their ninth consecutive monthly outflows. The subgroup returned a negative 5.31% on average over the week.
Gold and natural resources funds (+$30 million) were the only conventional equity fund subgroup to report a weekly inflow. This subgroup logged its first weekly inflow in 15 weeks despite realizing a negative 3.85% on the week.
Conventional Fixed Income Funds
Conventional taxable fixed income funds realized a weekly outflow of $6.5 billion – marking their eighth straight weekly outflow. The macro group has now reported a four-week outflow average of $9.2 billion, its largest outflow total since April 2020. The macro group recorded a negative 1.63% on average – their eighth week of negative returns over the last nine.
Conventional corporate investment grade funds (-$4.4 billion), flexible funds (-$981 million), and balanced funds (-$553 million) led the macro group in outflows. Corporate investment grade funds suffered their eighth consecutive week of outflows. The subgroup realized a negative 0.90% on the week, marking its ninth week with a sub-zero performance in 10.
Government Treasury funds (+$119 million) were the only taxable fixed income conventional funds subgroup to report inflows over the week. This subgroup ended seven weeks of outflows while realizing their seventh straight week of negative performance.
Municipal bond conventional funds (ex-ETFs) returned a negative 0.02% over the fund-flows week – their ninth week of negative returns in 10. The subgroup experienced $3.1 billion in outflows, marking the eighth consecutive week of outflows. Conventional municipal bond funds have only experienced five weeks of inflows year to date.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.