Investors were overall net sellers of fund assets (including those of conventional funds and ETFs) for the third week in a row, redeeming a net $30.9 billion for the Refinitiv Lipper fund-flows week ended Wednesday, May 18. Fund investors were net redeemers of money market funds (-$20.6 billion), taxable bond funds (-$4.4 billion), equity funds (-$3.2 billion), and tax-exempt fixed income funds (-$2.7 billion) for the week.

Market Wrap-Up

Despite the Dow posting its worst one-day decline since June 11, 2020, on the last trading day of the fund-flows week, the broad-based indices were mixed for the week as investors weighed the threat of a global economic slowdown, poor Q1 earnings reports from key retailers, and concern over the Federal Reserve’s ability to get inflation under control without causing a recession.

On Wednesday, May 18, the Dow Jones Industrial Average and the S&P 500 indices posted their worst one-day returns since June 2020 after some retailers’ Q1 earnings reports confirmed higher costs weighed on profits and U.S. Treasury Secretary Janet Yellen warned of a possible onset of global stagflation.

On the domestic side of the equation, the Dow Jones Industrial Average (-1.08% for the week, and down 13.34% YTD) posted the weakest returns of the other broadly followed U.S. indices as the stock market remained volatile during the fund-flows week. It was bettered by the S&P 500 (-0.29% and -17.68%, respectively). The Russell 2000 (+3.30% and -20.95%, respectively) posted the strongest returns of the other oft followed U.S. indices, followed by the Nasdaq Composite (+0.47% and -27.05%). Overseas, the Nikkei 225 (+4.11% and –16.22%, respectively) posted the strongest returns of the other often-followed broad-based international indices, while the Shanghai Composite (+0.58% and -19.94%, respectively) chalked up the weakest returns.

For the flows week, the Bloomberg U.S. Aggregate Bond Index (-0.19%) did a better job mitigating losses than the S&P/LSTA Leverage Loan Index (-0.61%) and the Bloomberg Municipal Bond Index (-0.80%).

On Thursday, May 12, U.S. stocks ended lower, with the S&P 500 approaching bear market territory, which is defined as a 20% decline from its recent peak—which was January 3—despite news that showed April wholesale inflation slowed slightly during the month. In other news, the Department of Labor reported that first time jobless claims from the week prior rose 1,000 to 203,000. The 10-year Treasury yield declined seven basis points (bps) on the day, closing at 2.84%, while front-month crude oil futures closed higher, settling at $106.13 per barrel (bbl).

Despite the Nasdaq posting its largest one-day percentage gain since November 4, 2020, on Friday, May 13, and the DJIA rising 466.36 points on the day, the Dow fell for the seventh consecutive week posting its longest weekly losing streak since July 2001 amid rising stagflation fears. While the Bureau of Labor Statistics reported April import prices cooled—remaining flat for the month, the University of Michigan’s May consumer sentiment gauge fell to 59.1—its lowest in more than 10 years. Nonetheless, the 10-year Treasury yield rose 11 bps to close at 2.93%. Front-month crude oil futures prices rose 4.1% on the day—closing at $110.49/bbl and posting a weekly gain of 0.7%.

The U.S. indices ended mixed on Monday, May 16, with the Dow finishing slightly higher, while the Nasdaq and S&P 500 suffered losses as some investors appeared doubtful that the Fed can tailor a soft landing in this inflationary environment. Investors were influenced by news that the New York Fed’s May Empire State business conditions index plunged 36.2 points to a negative 11.6—indicating weakening conditions—and Chinese economic data showed continued struggles from recent COVID lockdowns. The 10-year Treasury yield fell five bps to close at 2.88% while front-month crude oil prices rose 3.4% to $114.20/bbl.

Stocks ended significantly higher Tuesday, May 17, with the Dow witnessing its third straight day of plus-side performance, rising 1.3% on the day, and the Nasdaq gaining 2.8%. Investors appeared to be buying the dip after April retail sales rose 0.9%, slightly missing analysts’ expectations of 1.0%, but still showing signs of a healthy U.S. economy. However, a lower-than-expected Q1 earnings report from Walmart capped upside performance as investors evaluated the impact inflation might have on the average American shopper. The 10-year Treasury yield rose 10 bps to 2.98%. Front-month crude oil futures finished down 1.6% to $112.40/bbl.

The Dow booked its worst one-day loss in almost two years, declining 1,164.52 points, or 3.6%, on Wednesday, May 18, after Target Corporation reported earnings that significantly missed analyst expectations. Adding to the carnage, U.S. Treasury Secretary Janet Yellen cautioned that fallout from Russia’s war in Ukraine could lead to global stagflation. The 10-year Treasury yield declined nine bps to 2.89% and front-month oil futures prices fell 2.5% to $109.59/bbl.

Exchange-Traded Equity Funds

Equity ETFs witnessed their third consecutive week of net inflows, taking in $5.4 billion for the most recent fund-flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$5.3 billion), injecting money also for the third week in a row, while nondomestic equity ETFs witnessed net inflows also for the third week running but attracting just $38 million this past week. Large-cap ETFs (+$7.0 billion) attracted the largest draw of net new money, followed by equity income ETFs (+$1.8 billion) and sector-health/biotechnology ETFs (+$775 million). Meanwhile, once again, the commodities heavy sector-other ETFs (-$2.6 billion) suffered the largest net redemptions of the equity ETF macro-groups for the flows week, followed by sector-financial/banking ETFs (-$1.3 billion).

iShares Core S&P 500 ETF (IVV, +$4.8 billion) and Invesco QQQ Trust 1 ETF (QQQ, +$1.1 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, SPDR S&P 500 ETF (SPY, -$1.8 billion) experienced the largest individual net redemptions and SPDR Gold ETF (GLD, -$1.0 billion) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the fifth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $6.0 billion this last week. APs were net purchasers of government-Treasury ETFs (+$6.1 billion), corporate investment-grade debt ETFs (+$1.2 billion), and international & global debt ETFs (+$208 million), while being net redeemers of corporate high-yield debt ETFs (-$768 billion) and government-mortgage ETFs (-$485 million). iShares Short Treasury Bond ETF (SHV, +$2.0 billion), SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, +$1.1 billion), and iShares 20+ Year Treasury Bond ETF (TLT, +$1.1 billion) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Blackstone Senior Loan ETF (SRLN, -$622 million) and SPDR Portfolio Short Term Treasury ETF (SPTS, -$520 million) handed back the largest individual net redemptions for the week.

For the fourth straight week, municipal bond ETFs witnessed net inflows, with investors injecting $646 million this week. iShares National Muni Bond ETF (MUB, +$679 million) witnessed the largest draw of net new money of the municipal bond ETFs, while SPDR Nuveen Bloomberg Short Term Municipal Bond ETF (SHM, -$93 million) experienced the largest net redemptions in the subgroup for the week.

Conventional Equity Funds

Conventional fund (ex-ETF) investors were net sellers of equity funds for the fifteenth week in a row—redeeming $8.6 billion—with the macro-group recording a market gain of 1.17% for the fund-flows week. Domestic equity funds, suffering net redemptions of slightly less than $4.5 billion, also witnessed their fifteenth consecutive week of net outflows while chalking up a 0.84% market gain on average for the fund-flows week. Nondomestic equity funds—posting a 1.94% weekly return on average—observed their sixth straight week of net outflows, handing back $4.1 billion this week.

On the domestic equity side, fund investors were net purchasers of equity income funds (+$136 million) and sector-other funds (+$47 million), while being net redeemers of small-cap funds (-$1.9 billion) and large-cap funds (-$1.4 billion). Investors on the nondomestic equity side were net redeemers of international equity funds (-$3.3 billion) and global equity funds (-$842 million) for the week.

Conventional Fixed Income Funds

For the seventeenth week in a row, taxable bond funds (ex-ETFs) witnessed net outflows—handing back $10.4 billion this past week—while posting a 0.16% loss on average for the fund-flows week. Investors were net purchasers of Short U.S. Treasury Funds (+$57 million) and Specialty Fixed Income Funds (+$50 million) while being net redeemers of corporate investment-grade debt funds (-$5.4 billion), corporate high-yield funds (-$1.8 billion), and international & global debt funds (-$699 million).

The municipal bond funds group posted a 1.13% loss on average during the week and witnessed its nineteenth consecutive weekly net outflows, handing back $3.4 billion this week and marking its longest stretch of weekly net outflows since the week ended January 8, 2014. General & Insured Municipal Debt Funds (-$1.3 billion) and High Yield Municipal Debt Funds (-$793 million) experienced the largest net outflows of the group. Year to date, the municipal bond funds macro-group handed back $65.8 billion— witnessing the largest net redemption thus far of any full year dating back to 1992 when Lipper began calculating weekly estimated net flows.