Investors Pump $9.0 Billion Into Equity Funds Amid Rising Expectations Of Market Volatility

While the corporate earnings season may be slowing down, market uncertainty and inflationary fears appear to be picking up. Monday saw negative performance from U.S. broad-based equity markets, with the small-cap focused Russell 2000 (-2.59%) and tech-heavy NASDAQ (-2.55%) realizing the largest declines. The VIX rose 16.03% as investors start to question the Federal Reserve’s stance on price level increases being “transitory.” Demand surges amid a fuel pipeline shutdown (due to a cyberattack) have led to supply-chain constraints that have many market participants fearing both temporary and permanent price level increases. On Tuesday, U.S. equity markets fell for the second straight day as investors prepared for Wednesday’s CPI data.

Wednesday, March 12, ended our Lipper fund-flows week with CPI data revealing a 4.2% increase compared to expectations of a 3.6% increase—revealing the largest 12-month increase since September 2008. Although the year-over-year number is amplified due to the economy being completely shut down last April, the one-month increase of 0.8% was also greater than estimations. The two largest month-over-month increases from the CPI data were Used Cars and Trucks (+10.0%, its largest monthly increase to date) and Transportation Services (+2.9%). Pair these increases with the leisure and hospitality industry recording the largest hiring gains in the most recent nonfarm payrolls report and we can certainly see an increase in the demand for travel.

U.S. equity markets fell drastically Wednesday following the CPI data. DJIA (-1.99%) and S&P 500 (-2.14%) each posted their lowest daily returns since January and February, respectively. The VIX closed the fund-flows week at 27.59—its third straight day of sharp increases. The 10-two Treasury yield rose by the largest amount since March (+4.44%).

Exchange-Traded Equity Funds

After seeing $11.3 billion in net inflows, exchange-traded equity funds recorded their fourteenth straight week of positive inflows. Despite negative weekly performance on average (-2.41%), the macro-group attracted its largest weekly inflows since March.

The top two sub-groups to attract weekly net inflows were growth/value large-cap ETFs (+$4.5 billion) and international equity ETFs (+$4.0 billion). Growth/value large-cap ETFs have reported back-to-back weekly net inflows, while international equity ETFs have recorded 21 straight weeks of net inflows. Sector financial/banking ETFs witnessed the largest inflow as a percentage of total assets (+$777 million).

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