The holiday-shortened trading week with low market volume kept most investors on the sidelines. However, the late-week release of the Federal Open Market Committee minutes—hinting at a faster pace of rate hikes in the coming months but largely ignored by investors—and strong U.S. automobile sales for November piqued investor interest on the second trading day of 2017.
On Thursday, December 29, investors were reluctant to make any major bets in the market ahead of the extended holiday weekend. While they generally cheered the prior week’s decline in weekly jobless claims, the seasonally low trading volume, concerns that markets might be overextended, and a rise in U.S. crude oil inventories (weighing on oil prices) led to some year-end profit taking. Despite U.S. stocks seeing declines on the final trading day of the year (suffering their first weekly decline in eight), the Dow Jones Industrial Average posted its best one-year return since 2013. The broad-based indices rose on the first trading day of 2017, but gains were muted as oil declined more than 2% on the day, despite the fact that the OPEC oil-reduction deal went into effect. Markets were initially boosted by encouraging Chinese manufacturing data, a jump in the ISM manufacturing Index, and news that construction spending rose 0.9% for November, beating analyst expectations. At the end of the flows week (Wednesday, January 4) the markets rose to near record levels as investors learned that car sales had come in better than expected for GM and Ford and that the Nikkei 225 index had risen to a 13-month high.
For the third week in four fund investors were net redeemers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), withdrawing $6.3 billion for the fund-flows week. Investors padded the coffers of equity funds (+$2.4 billion) and taxable bond funds (+$1.2 billion), but they were net redeemers of municipal bond funds (-$0.9 billion) and money market funds (-$9.0 billion).
For the second consecutive week equity ETFs witnessed net inflows, taking in just a little under $7.9 billion for the flows week. Authorized participants (APs) were net purchasers of domestic equity ETFs (+$6.7 billion), injecting money into the group for the ninth week in a row. Meanwhile, for the second week running nondomestic equity ETFs also witnessed net inflows, this past week attracting $1.2 billion. SPDR S&P 500 ETF (+$3.1 million), iShares Russell 2000 ETF (+$0.8 billion), and Financial Select Sector SPDR ETF (+$0.5 billion) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum PowerShares QQQ Trust 1 (-$1.0 billion) experienced the largest individual net redemptions, and SPDR Gold ETF (-$355 million) suffered the second largest net redemptions for the week.
For the forty-second week in 43 conventional fund (ex-ETF) investors were net redeemers of equity funds, redeeming $5.5 billion. Domestic equity funds, handing back a little less than $4.3 billion, witnessed their forty-seventh week in 48 of net outflows, but they posted a 1.29% gain on average for the flows week. Meanwhile, their nondomestic equity fund counterparts, posting a 1.97% return on average for the week, witnessed net outflows (-$1.2 billion) for the sixth week in seven. On the domestic equity side fund investors continued to lighten up on large-cap funds (-$3.2 billion net), while on the nondomestic side they shunned international equity funds (-$0.7 billion) and global equity funds (-$0.5 billion).
For the first week in four taxable bond funds (ex-ETFs) witnessed net inflows, but they attracted just $114 million net. Government-mortgage debt funds witnessed the largest net outflows of the group, handing back $877 million, while flexible portfolio funds witnessed the next largest net outflows (-$607 million). Corporate investment-grade debt funds experienced the largest net inflows, taking in $1.4 billion for the week. With the Fed’s recent hawkish tone, it wasn’t too surprising to see Thomson Reuters Lipper’s Treasury Inflation-Protected Bond Funds classification taking in money for the ninth consecutive week (+$60 million) and bank loan funds witnessing their eighth week of net inflows, attracting some $468 million for the week. For the eighth week in a row municipal bond funds (ex-ETFs) witnessed net outflows, this past week handing back $1.5 billion.