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During LSEG Lipper’s fund-flows week that ended November 1, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the second week in a row, adding a net $53.3 billion.

Money market funds (+$56.4 billion, +0.10%) and equity funds (+$983 million, +1.14%) attracted new capital. Tax-exempt bond funds (-$1.5 billion, -0.13%), mixed-assets funds (-$1.2 billion, -0.85%), alternative investment funds (-$1.1 billion, -0.02%), and taxable bond funds (-$278 million, +0.91%) all suffered outflows over the week.

Index Performance

At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported positive returns—the DJIA (+0.72%), Nasdaq (+1.87%), Russell 2000 (+1.11%), and S&P 500 (+1.22%) were all up for the week, marking the first week in three realizing gains.

Both the Bloomberg Municipal Bond Total Return Index (+0.24%) and Bloomberg U.S. Aggregate Bond Total Return Index (+1.34%) also logged their first plus-side return in three weeks.

Overseas indices traded mixed—the DAX (-0.25%) and FTSE 100 (-1.13%) were down, while the Nikkei 225 (+0.35%) and Shanghai Composite (+1.59%) were both up for the week.

Rates/Yields

The 10-two Treasury yield spread closed Tuesday at its highest level (-0.16) in more than a year as the yield curve started to flatten. The two- and 10-year Treasury yields fell over the week (-3.09% and -3.62%, respectively).

According to Freddie Mac, the 30-year fixed-rate average (FRM) fell for the first week in seven—the weekly average is currently at 7.76%. The United States Dollar Index (DXY, +0.33%) increased while the VIX (-19.68%) fell over the course of the week.

The CME FedWatch Tool currently has the likelihood of the Federal Reserve increasing interest rates by 25 basis points (bps) at 19.6%. This tool forecasted a 39.0% possibility of the same hike one month ago. The next meeting is scheduled for December 13, 2023.

Market Recap

Our fund-flows week kicked off on Thursday, October 26, with the Bureau of Economic Analysis reporting that the U.S. economy grew at nearly 5% during the third quarter thanks to a tight labor market and higher wages keeping consumer spending strong. Consumer spending, which accounts for more than two-thirds of economic activity in the U.S., grew at a 4.0% rate in Q3 following Q2’s 0.8%. With the U.S. seemingly handling the significant rate hikes done by the Federal Reserve—at least at the moment—an increasing number of economists have been forecasting a “soft landing.” The red flag was the drop in the saving rate from 5.2% to 3.8% quarter over quarter. U.S. broad-based equity markets traded down on the day outside of the small-cap focused Russell 2000 (+0.34%). Treasury yields also fell, led by the five-year (-2.30%).

On Friday, October 27, the Department of Commerce reported that U.S. consumer spending increased 0.7% in September after a 0.4% increase in August—adjusted for inflation, spending still rose 0.4% last month. The September savings rate fell to 3.4% from August’s 4.0%, while personal income increased 0.3% month over month after gaining 0.4% in August. The personal consumption expenditures (PCE) index climbed 0.4% in September, as core-PCE, excluding food and energy rose 0.3%—core-PCE increased 0.1% in August. Nasdaq rose 0.38%, while the remaining broad-based U.S. equity indices fell on the day. The two-year Treasury yield fell 0.83% with the 10-year falling 0.21%.

On Monday, October 30, U.S. equity markets rallied on the day—the DJIA (+1.58%), S&P 500 (+1.20%), Nasdaq (+1.16%), and Russell 2000 (+0.63%) were all in positive territory. Treasury yields rose as well, with a selloff in the Treasury market—the two- and 10-year yields increased 0.84% and 0.97%, respectively. The Federal Reserve Bank of Dallas reported its Texas Manufacturing Outlook Survey which showed growth in Texas factory activity continued in October, marking the second straight month of positive readings after four months in negative territory.

On Tuesday, October 31, the Bureau of Labor Statistics reported that the Employment Cost Index (ECI) rose 1.1% quarter over quarter while increasing 4.3% year on year—marking the smallest annual gain since Q4 2021. Annual compensation growth was reported as slowing after last year’s peak of 5.1%. The Federal Housing Finance Agency reported that home prices grew 0.6% in August from the prior month, while year-over-year prices increased 5.6% following a 4.6% annual acceleration in July. The Department of Commerce showed that rental vacancy rates climbed 6.6% in Q3, marking the highest level since Q1 2021. Equity markets increased for the second straight session—the Russell 2000 (+0.91%), S&P 500 (+0.65%), Nasdaq (+0.48%), and DJIA (+0.38%) were all up.

Our fund-flows week wrapped up Wednesday, November 1, with the Department of Labor showing layoffs dropped to a nine-month low in their most recent Job Openings and Labor Turnover Survey (JOLTS). The report also showed that there were 1.5 job openings for every unemployed person, up from 1.49 last month. Fed Chair Jerome Powell spoke and hinted the central bank could be done raising rates but was careful not to rule out future increases. Officials on Wednesday voted unanimously to leave rates unchanged at the 22-year high. Powell when asked if the Fed has raised rates to a level that will suppress inflation said, “We’re not confident that we haven’t, but we’re not confident that we have.” The two- and 10-year Treasury yields fell 2.15% and 3.01%, respectively, while equity markets rose on the day—Nasdaq (+1.64%) was the big winner.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $7.8 billion in weekly net inflows, their fifth straight week of attracting new capital. The macro-group posted a 1.10% gain on the week, its first week in the black over the last three.

Large-cap ETFs (+9.5 billion), small-cap ETFs (+$1.3 billion), and multi-cap ETFs (+$1.1 billion) attracted the only inflows among the equity ETF subgroups. Large-cap ETFs reported their sixth straight weekly inflow and largest since the week ending September 13, 2023, while realizing their first weekly gain in three weeks.

Sector equity ETFs (-$3.9 billion), developed international markets ETFs (-$463 million), and mid-cap ETFs (-$272 million) suffered the largest weekly outflows under equity ETFs. Sector equity ETFs have realized seven weeks of outflows in the past nine as they have realized their first weekly gain in three. Lipper Financial Services ETFs (-$1.5 billion) was the main attributor under our sector equity group.

All subgroups recorded gains on the week except for world sector equity funds (-0.18%).

Over the past fund-flows week, the two top equity ETF flow attractors were SPDR S&P 500 ETF Trust (SPY, +$7.4 billion) and iShares Russell Top 2000 Fund (IWM, +$918 million).

Meanwhile, the bottom two equity ETFs in terms of weekly outflows were Financial Select Sector SPDR Fund (XLF, -$1.3 billion) and Invesco QQQ Trust Series 1 (QQQM, -$685 million).

Exchange-Traded Fixed Income Funds

Exchange-traded taxable fixed income funds observed a $3.5 billion weekly inflow—the macro-group’s fourth straight weekly inflow. Fixed income ETFs reported a weekly return of positive 0.91% on average, their first gain in three.

Short/intermediate government & Treasury ETFs (+$4.1 billion), general domestic taxable fixed income ETFs (+$1.3 billion), and world income ETFs (+$13 million) were the three top subgroups to see net inflows. Short/intermediate government & Treasury ETFs have logged nine weeks of inflows over the last 10 and largest weekly intake since March.

U.S. government & Treasury fixed income ETFs (-$639 million), short/intermediate investment-grade ETFs (-$625 million), and high yield ETFs (-$1.6 billion) were the top subgroups under taxable bond ETFs to observe outflows. This was the first week in seven where U.S. government & Treasury fixed income ETFs suffered an outflow. The subgroup recorded their first weekly gain (+1.68%) in three.

Municipal bond ETFs reported a $60 million outflow over the week, marking their first outflow in eight weeks. The subgroup realized a negative 0.10% return—the first week of gains in three.

SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$3.1 billion) and iShares 1-3 Year Treasury Bond ETF (SHY, +$555 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: Core US Aggregate Bond ETF (AGG, -$517 million) and iShares: iBoxx $High Yield Corporate Bond ETF (HYG, -$419 million) suffered the largest weekly outflows under all taxable fixed income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$6.8 billion) for the ninetieth straight week. Conventional equity funds posted a weekly return of positive 1.17%, the first week of gains in three.

Mid-cap funds (-$1.1 billion), large-cap funds (-$1.1 billion), and equity income funds (-$891 million) were the top conventional equity fund subgroups to realize weekly outflows. Mid-cap funds have suffered 24 straight weekly outflows despite realizing gains on the week (+0.81%).

No subgroup under equity mutual funds recorded weekly inflows.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly outflow of $3.7 billion—marking their eighth consecutive weekly outflow. The macro-group logged a positive 0.91% on average—their first weekly gain in three.

Short/intermediate investment-grade funds (-$2.1 billion), U.S. government & Treasury fixed income funds (-$454 million), and high yield funds (-$395 million) suffered the top outflows among conventional taxable fixed income subgroups over the trailing week. Short/intermediate investment grade funds have seen 12 weekly outflows in the last 13 weeks while recording a gain of 1.0%.

No subgroup under taxable fixed income mutual funds recorded weekly inflows.

Municipal bond conventional funds (ex-ETFs) returned a positive 0.13% over the fund-flows week—their first gain in three weeks. The subgroup experienced a $1.4 billion outflow, marking their thirteenth straight weekly outflow.

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