U.S. stocks suffer largest weekly outflows in 11 weeks as investors brace for possible jumbo Fed rate hike
Investors withdrew billions of dollars out of U.S. equities funds over the past week as central bankers’ hawkish messaging fueled fears of deeper economic downturn.
U.S. stock funds recorded the biggest weekly outflows of $10.9 billion in 11 weeks in the week to September 7, according to strategists at BofA Global Research, citing EPFR Global data in a weekly note (see below).
SOURCE: BOFA GLOBAL INVESTMENT STRATEGY, EPFR.
The exodus was largely from technology stocks, which booked withdrawals of $1.8 billion. The materials and financials sectors each witnessed outflows of $1.4 million, the data showed. Meanwhile, global equity funds saw outflows of $14.5 billion with $5.5 billion of which being withdrawn from exchanged traded funds. Government and treasury bonds gained $6.1 billion in the past three weeks.
According to BofA Global strategists led by Michael Hartnett, chief investment strategist, the inflow to stocks between the November 2020 and February 2022 period has already ended, and there have been no net inflows to stocks over the past six months.
“Bonds hate inflation, equities hate recession, and risk sentiment is appalling,” wrote the analysts.
Federal Reserve Chair Powell said on Thursday the central bank remained strongly committed to fighting inflation, and that it wouldn’t be deterred by politics or other distractions. “I can also assure you that we never take into consideration external political considerations,” Powell said.
The hawkish stance has been echoed by many senior Fed officials this week. Fed Governor Christopher Waller said on Friday they may have to raise the benchmark interest rate “well above 4%” if inflation does not moderate or rises further this year.
U.S. stocks finished sharply higher on Friday, notching weekly gains after three consecutive weeks of losses. The S&P 500 SPX,
See: Paul Volcker didn’t wait for inflation to get back to 2% before pivoting
Elsewhere, European stocks recorded the 30th week of outflows in 2022, according to BofA Research.
The European Central Bank hiked interest rates by 75 basis points on Thursday, while signaling that more jumbo-sized rate hikes would likely follow. The Bank of England delayed interest rate meeting by one week to September 22 due to royal mourning following the death of Queen Elizabeth II.
