During Refinitiv Lipper’s fund-flows week ended April 13, 2022, investors were overall net redeemers of fund assets (including both conventional funds and ETFs) for the second straight week, withdrawing a net $46.2 billion from the market.

Money market funds (-$23.0 billion), equity funds (-$9.6 billion), taxable bond funds (-$9.6 billion), and tax-exempt bonds (-$4.1 billion) all suffered weekly outflows.

Index Performance

At the close of Refinitiv Lipper’s fund-flows week, U.S. broad-based equity indices traded mixed—Russell 2000 (+0.40%), DJIA (+0.20%), S&P 500 (-0.77%), and Nasdaq (-1.77%).

Fixed income indices yet again, both the Bloomberg U.S. Aggregate Bond Index (-0.79%) and Bloomberg Municipal Bond Index (-0.67%), realized their sixth consecutive negative weekly performance.

Overseas broad market indices traded negative—Nikkei 225 (-3.40%), Shanghai Composite (-2.96%), DAX 30 (-1.19%), and FTSE 100 (-0.48%).

Rates/Yields

The 10-two Treasury yield spread increased more than 200% for the second straight week (+256.67%). Both the two-year (-6.39%) and five-year (-2.22%) Treasury yields fell from last week, while the 10- (+3.07%) and 30-year (+6.23%) yields increased.

As of April 14, the U.S. 30-year fixed-rate mortgage average rose to 5.00%—a 5.93% rise from the prior week and the sixth week in a row reporting an increase. The United States Dollar Index (DXY, +0.28%) appreciated slightly while the VIX (-1.28%) decreased over the week.

Market Recap

Our fund-flows week kicked off Thursday, April 7, the market digested the latest Federal Reserve meeting minutes which displayed growing hawkish sentiment. The minutes read:

“In their discussion, all participants agreed that elevated inflation and tight labor market conditions warranted commencement of balance sheet runoff at a coming meeting, with a faster pace of decline in securities holdings than over the 2017–19 period.”

The Fed officials signaled that they want to start reducing the balance sheet by $95 billion each month, planning to allow $60 billion in Treasuries and $35 billion in mortgage-backed securities (MBS) roll off. The minutes also stated:

“Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified.”

Equity markets ended the Thursday session mostly positive—S&P 500 (+0.43%), DJIA (+0.25%), Nasdaq (+0.06%), and Russell 2000 (-0.35%).

On Friday, April 8, St. Louis Fed President James Bullard, known for being more hawkish than his colleagues, stated he wants the fed funds rate to be between 3.00% and 3.25% in the second half of this year. Bullard’s stance seems to be gaining more and more traction, with Chicago Fed President Charles Evans saying, “Fifty is obviously worthy of consideration. Perhaps it’s highly likely even if you want to get to neutral by December.” Strategists at Bank of America predicted that the Fed’s actions to combat rising inflation will lead the country toward an economic recession. Their forecast also includes policymakers increasing interest rates in each of the six remaining meetings this year. Bank of America becomes the second big bank to suggest an oncoming recession, following Deutsche Bank. The DJIA (+0.40%) was the only broad-based equity index to end the day in the black—Nasdaq (-1.34%), Russell 2000 (-0.76%), and S&P 500 (-0.27%). All Treasury yields increased by more than 2.0% on the day, led by the three-year (+2.98%).

On Monday, April 11, in a survey published by the New York Federal Reserve, U.S. consumers reported they now anticipate inflation will increase by 6.6% next year—up from 6.0% last month and the largest inflation expectation reported since the survey began in 2013. The yield on the 10-year Treasury note spiked to 2.78%, marking its highest level in more than three years. Tech-heavy Nasdaq (-2.18%) struggled mightily on the day—technology securities tend to do poorly in rising rate environments as their balance sheets are often heavily debt-ridden.

Tuesday, April 12, was Consumer Price Index (CPI) day. The Bureau of Labor Statistics (BLS) announced March’s CPI increased 8.5% over the last 12 months, the fastest pace since December 1981 and the seventh straight month reporting an acceleration on a 12-month basis. The incredible 8.5% increase follows a 7.9% increase in February that did not largely account for the oil spikes brought on by the geopolitical turmoil. Core-CPI (excluding food and energy) rose by 6.5% on an annual basis. The index reported gas prices spiked 18.3% month-on-month. Investors fled equities and rushed into Treasuries, the two- and three-year Treasury yields fell 4.74% and 4.62%, respectively. Oil futures also rose above $100 per barrel for the first time this week. President Joe Biden said he will temporarily waive the federal requirement set by the Environmental Protection Agency (EPA) which limits ethanol levels in gasoline over the summer in order to prevent gas prices from continuing to increase.

Our fund-flows week wrapped up Wednesday, April 13, with the first-quarter earnings season beginning. Delta Air Lines (DAL) announced better-than-expected revenue, while JPMorgan Chase’s (JPM) Q1 profit fell 42%. As noted earlier, mortgage rates have surpassed 5% for the first time in over three years, as reported by the Mortgage Bankers Association (MBA). The last time it was above 5% was in November 2018. Both mortgage application volume (-1.3%) and refinancing volume (-5.0%) fell during the week to their lowest levels since 2019—home refinancing is down 62% from last year. Broad-based U.S. equity markets fared well on the day—Nasdaq (+2.03%), Russell 2000 (+1.92%), S&P 500 (+1.12%), and DJIA (+1.01%).

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $3.0 billion in weekly net outflows, marking their first week of outflows over the past 10 weeks. The macro-group posted a negative return of 0.29% on the week, their second straight week of negative performance.

Growth/value-small cap ETFs (-$3.6 billion), growth/value-large cap ETFs (-$3.6 billion), and sector-financial/banking ETFs (-$1.2 billion) were the top flow detractors under the macro-group. The massive outflows for growth/value-small caps ranks third all-time and the largest since May 2014—the largest outflows for the subgroup came in January 2007 (-$3.8 billion). Growth/value-large cap ETFs posted their first outflows in 10 weeks.

Sector-other ETFs (+$2.4 billion), equity income ETFs (+$1.5 billion), and international equity ETFs (+$1.4 billion) were the largest equity ETF subgroups to post inflows this week. International equity ETFs have only suffered two weekly outflows over the past 17 weeks as the subgroup logs its third weekly inflow of more than $1.3 billion. Sector-other ETFs have logged inflows in three of the last four weeks while realizing their second-best performing week of the year (+2.27%).

Over the past fund-flows week, the top three equity ETF flow attractors SPDR Gold ETF (GLD, +$1.1 billion), Direxion: Semiconductor Bull 3X (SOXL, +$1.1 billion), and VanEck Semiconductor ETF (SMH, +$761 million).

Meanwhile, the bottom three equity ETFs in terms of weekly outflows were Invesco QQQ Trust 1 (QQQ, -$2.6 billion), SPDR S&P 500 ETF (SPY, -$2.4 billion), and iShares: Russell 2000 ETF (IWM, -1.1 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded fixed income funds observed $1.0 billion in weekly net outflows—the macro-group’s second consecutive week of outflows. Fixed income ETFs reported a weekly return of negative 0.56% on average—the macro-group’s sixth straight week of sub-zero performance.

Corporate-high yield ETFs (-$2.8 billion), flexible funds ETFs (-$593 million), and government-mortgage ETFs (-$211 million) witnessed the largest outflows under the fixed income ETF macro-group. Corporate-high yield ETFs have suffered five weekly outflows in the last six weeks while logging their second-largest weekly outflow of the year. Government-mortgage ETFs have observed eight straight weekly outflows.

Government-Treasury ETFs (+$2.1 billion), corporate-investment grade ETFs (+$440 million), and international & global debt ETFs (+$7 million) were the only attractors of capital under fixed income ETFs. Government-Treasury ETFs posted their seventh weekly inflows over the last eight weeks despite suffering a negative weekly performance (-0.47%) for the fifth straight week. International & global debt ETFs have logged weekly inflows in five of the last six weeks.

SPBR Bloomberg 1-3 Month Treasury ETF (BIL, +$617 million), iShares: Short Treasury Bond ETF (SHV, +$456 million), and iShares: iBoxx $Investment Grade Corporates ETF (LQD, +$360 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares: iBoxx $High Yield Corporates ETF (HYG, -$1.7 billion), SPDR Bloomberg High Yield ETF (JNK, -$681 million), and ProShares: UltraPro Short QQQ ETF (SQQQ, -$345 million) suffered the largest net weekly outflows.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$6.6 billion) for the tenth straight week. Conventional equity funds posted a weekly return of a negative 0.53%, marking their second consecutive week of negative performance. This outflow was the largest for the macro-group so far this year.

Global equity conventional funds (-$7.5 billion), growth/value small-cap funds (-$1.6 billion), sector-technology funds (-$286 million), and sector-real estate funds (-$160 million) were the largest subgroup outflows under conventional equity funds. Global equity conventional funds posted their largest weekly outflow on record while posting a negative 0.73% over the week. Growth/value small-cap funds have now recorded 10 straight weeks of outflows and have realized their largest four-week moving average flow of the year (-$1.2 billion).

Growth/value-large cap conventional funds (+$1.7 billion), international equity funds (+$1.4 billion), sector-other funds (+$172 million), and gold and natural resources funds (+$67 million) were the largest attractors of capital over this fund-flows week. Conventional growth/value-large cap funds witnessed their first weekly intake in three weeks and their largest of the year, even though they realized a negative 0.67%, on average, over the past week.

Conventional Fixed Income Funds

Conventional fixed income funds realized a weekly outflow of $8.5 billion—marking their twelfth straight week of outflows. The subgroup has produced a negative four-week flows moving average of at least $1.3 billion in 11 consecutive weeks. The macro-group recorded a negative 0.42% on average—their second week in a row of sub-zero performance.

Corporate-investment grade (-$4.9 billion), corporate-high yield (-$1.3 billion), flexible funds (-$808 million), and government-mortgage (-$446 million) led the macro-group in outflows. Conventional corporate-investment grade funds have now suffered nine consecutive weeks of outflows while flexible funds have seen negative flows in six of the past seven weeks.

No subgroup under the conventional fixed income macro-group reported a weekly inflow.

Municipal bond funds (ex-ETFs) returned a negative 0.95% over the fund-flows week—their sixth negative weekly performance in a row. The subgroup experienced $4.3 billion in outflows, marking their fourteenth week in a row of outflows and the largest outflows of the year. The subgroup has logged 11 straight weeks with a four-week moving outflows average of greater than $1.1 billion. Conventional municipal bond funds only recorded five total weeks of net outflows in all of 2021.