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During LSEG Lipper’s fund-flows week that ended December 13, 2023, investors were overall net sellers of fund assets (including both conventional funds and ETFs) for the first week in eight, removing a net $19.1 billion.

Equity funds (+$2.2 billion, +3.39%) and commodity funds (+$461 million, -2.19%) were the only attracters of net new capital. Money market funds (-$16.2 billion, +0.10%), taxable bond funds (-$3.7 billion, +0.72%), alternative investments funds (-$783 million, +-.17%), tax-exempt bond funds (-$524 million, +0.20%), and mixed-assets funds (-$444 million, -2.19%) suffered outflows over the week.

Index Performance

At the close of LSEG Lipper’s fund-flows week, U.S. broad-based equity indices reported strong returns—DJIA (+2.87%), Nasdaq (+4.15%), Russell 2000 (+5.15%), and S&P 500 (+3.47%).

Both the Bloomberg Municipal Bond Total Return Index (+0.11%) and Bloomberg U.S. Aggregate Bond Total Return Index (+1.00%) rose over the week.

Overseas indices traded mixed—DAX (+0.69%), FTSE 100 (-0.11%), Nikkei 225 (-0.16%), S&P/TSX Composite (+1.67%), and Shanghai Composite (-0.38%). The Shanghai Composite has realized negative returns in three straight weeks.

Rates/Yields

Both the two- (-3.35%) and 10-year (-2.31%) fell over the course of the week as investors anticipate the market has hit peak interest rate levels with the Federal Reserve Board leaving interest rates unchanged in its final meeting of the year on Wednesday.

According to Freddie Mac, the 30-year fixed-rate average (FRM) fell for the seventh straight week—the weekly average is currently at 6.98%—marking the first time rates fell under 7% since August. The United States Dollar Index (DXY, -1.22%) fell, while the VIX (+6.40%) increased over the course of the week.

The CME FedWatch Tool currently has the likelihood of the Federal Reserve lowering interest rates by 25 basis points (bps) at 81.4%. This tool forecasted a 2.1% possibility of a 25-basis points (bps) cut one month ago. The next meeting is scheduled for January 31, 2024.

Market Recap

On Thursday, December 7, Challenger, Gray & Christman, Inc. published its November 2023 Challenger Report which announced that there were 45,510 job cuts in November by U.S.-based employers. This was a 24% increase from October, but a 41% decrease from November 2022, marking the first time cuts were lower than the corresponding month one year ago since July. Also highlighted in the report was the fact that U.S. companies have announced plans to cut 686,860 jobs which is a 115% increase from the same period last year. According to the report, the technology sector leads all industries this year with 163,562 cuts, 5,049 of which occurred in November. Equity markets rebounded from the end of last week—Nasdaq (+1.37%), Russell 2000 (+0.87%), S&P 500 (+0.80%), and DJIA (+0.17%). Treasury yields rose slightly except for a drop in the two-year yield (-0.20%).

The calendar week ended Friday, December 8, with the Department of Labor releasing its nonfarm payrolls report. According to the report, nonfarm payrolls increased by 199,000 in November, helping lead to the unemployment rate falling from 3.9% to 3.7%. Nonfarm payrolls increased by a revised total of 150,000 in October. The labor force participation rate increased from 62.7% to 62.8%. The positive job numbers led to a second consecutive day or gains in U.S. equity markets—the Russell 2000 (+0.67%), Nasdaq (+0.45%), S&P 500 (+0.41%), and DJIA (+0.36%) were all up. Both the two- (+2.90%) and 10-year (+1.93%) Treasury yields rose on the day.

On Monday, December 11, equity markets edged up with the DJIA (+0.43%) and S&P 500 (+0.39%) leading the way on a relatively quiet market news day. The two-year Treasury yield fell on the day (-0.19%), with longer-dated yields slightly rising as market participants’ attention shifts to the Federal Open Market Committee (FOMC) meeting later in the week.

On Tuesday, December 12, the Department of Labor released the November Consumer Price Index (CPI) report detailing an increase of 0.1% over the month following no change in October. CPI rose 3.1% year over year, with core-CPI advancing 4.0%. Equity markets realized gains for the fourth straight day. Longer-dated Treasury yields fell with the 10- (-0.68%) and 30-year (-0.32%) falling for the first time in four days.

Our fund-flows week wrapped up Wednesday, December 13, with the Department of Labor reporting that the producer price index (PPI) was unchanged in November while increasing 0.9% year-over-year. This was the second straight month services prices were unchanged leading to an increased feeling that a “soft landing” of curbing inflation without breaking the economy is becoming increasingly likely. PPI advanced 1.2% year on year in October. The big announcement was the FOMC maintained its policy rate level at 5.25%-5.50%, which was widely expected. Federal Reserve officials now expect three rate cuts next year and four more in 2025, with most FOMC members expecting the federal funds rate to fall within the 4.25%-5.0% next year. Treasury yields fell drastically on the day—two- (-6.05%), five- (-5.64%), 10- (-4.33%), and 30-year (-3.11%) all dropped.

Exchange-Traded Equity Funds

Exchange-traded equity funds recorded $7.9 billion in weekly net inflows, the eleventh straight week of ETFs attracting new capital. The macro-group posted a 3.45% gain on the week, its seventh consecutive week in the black.

Equity income ETFs (+$3.2 billion), multi-cap ETFs (+$2.5 billion), and small-cap ETFs (+$2.3 billion) attracted the top inflows among the equity ETF subgroups. Equity income ETFs logged their largest weekly inflow of the year as they recorded their twenty-fifth inflow.

Large-cap ETFs (-$2.4 billion), world sector equity ETFs (-295 million), and developed global markets equity ETFs (-21 million) suffered the top weekly outflows under equity ETFs. Large-cap ETFs observed their first weekly outflow in 12 weeks, despite realizing their largest weekly gain in more than one year.

Small-cap ETFs (+5.01%) led the subgroups in weekly performance as they realize six weekly gains in the last seven.

Over the past fund-flows week, the two top equity ETF flow attractors were iShares Core S&P 500 ETF (IVV, +$3.0 billion) and WisdomTree US Quality Dividend Growth Fund (DGRW, +$1.7 billion).

Meanwhile, the two bottom equity ETFs in terms of weekly outflows were SPDR S&P 500 ETF Trust (SPY, -$4.5 billion) and Invesco QQQ Trust Series 1 (QQQ, -$2.7 billion).

Exchange-Traded Fixed Income Funds

Exchange-traded taxable fixed income funds observed a $1.0 billion weekly outflow—the macro-group’s second straight outflow. Fixed income ETFs reported a return of positive 0.67% on average, their seventh consecutive positive weekly return.

Short/intermediate government & Treasury fixed income ETFs (-$2.6 billion) and government & Treasury fixed income ETFs (-2.0 billion) were the only subgroups under taxable bond ETFs to observe outflows. After eight straight weeks of inflows, the subgroup has logged six consecutive weekly outflows.

General domestic taxable fixed income funds (+$1.7 billion), high yield ETFs (+$742 million), and short/intermediate investment grade ETFs (+$649 million) were the three top subgroups to see net inflows. General domestic taxable fixed income funds have seen inflows in eight of the prior 10 weeks while realizing seven straight weeks of positive returns.

Municipal bond ETFs reported a $86 million inflow over the week, marking their thirteenth week of inflows over the past 14 weeks attracting new capital. The subgroup realized a positive 0.16% return—the seventh straight weeks of gains.

iShares Core US Aggregate Bond ETF (AGG, +$546 million) and iShares Core International Aggregate Bond ETF (IAGG, +$474 million) attracted the largest amounts of weekly net new money for taxable fixed income ETFs.

On the other hand, iShares 7-10 Year Treasury Bond ETF (IEF, -$1.1 billion) and iShares US Treasury Bond ETF (GOVT, -$902 million) suffered the largest weekly outflows under all taxable fixed income ETFs.

Conventional Equity Funds

Conventional equity funds (ex-ETFs) witnessed weekly outflows (-$5.8 billion) for the ninety-sixth straight week. Conventional equity funds posted a weekly return of positive 3.33%, the seventh consecutive week of gains.

Multi-cap funds (-$3.6 billion), developed international markets funds (-$2.0 billion), and small-cap funds (-$772 million) were the top conventional equity fund subgroups to realize weekly outflows. Multi-cap funds have suffered 16 consecutive weekly outflows despite producing seven straight weekly gains.

Large-cap funds (+$2.3 billion) and mid-cap funds (+$1.1 billion) were the only two subgroups to attract new capital over the week. Large-cap funds logged their first weekly inflow in 11 weeks as they also realized their first gain in three.

Conventional Fixed Income Funds

Conventional taxable-fixed income funds realized a weekly outflow of $2.6 billion—marking their thirteenth weekly outflow over the past 14. The macro-group logged a positive 0.75% on average—their seventh straight weekly gain.

Short/intermediate investment-grade funds (-$1.2 million), government & Treasury funds (-$643 million), and world income funds (-$366 million) suffered the top outflows among conventional taxable fixed income subgroups over the trailing week. Short/intermediate investment grade funds have seen 13 weekly outflows over the past 14 despite recording seven consecutive weekly gains.

Alternative bond funds (+$178 million) and high yield funds (+$16 million) were the only two subgroups to post inflows on the week. Alternative bond funds have reported back-to-back weekly inflows as they also realize eight straight weeks of gains.

Municipal bond conventional funds (ex-ETFs) returned a positive 0.21% over the fund-flows week, marking seven straight weeks of plus-side returns. The subgroup experienced a $611 million outflow, marking the nineteenth straight weekly outflow.

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