U.S. equity ETFs lost $4.45 billion this week as traders raised their bets on a Federal Reserve rate hike. The S&P 500 snapped a two-week win streak while Treasury yields surged, pushing the 10-year toward the 5% level.
Investors pulled $4.45 billion out of U.S. equity ETFs this week, reversing an inflow of $1.35 billion the week before, Jefferies said on Saturday. ETFs sensitive to interest rates drove the outflows, including funds tied to the consumer discretionary sector.
Rate hike odds jump as inflation data surprises
Wall Street closed a holiday-shortened week lower, with the S&P 500 falling nearly 1% and snapping a two-week win streak. Producer and consumer inflation reports showed elevated price pressures, and odds of the Federal Open Market Committee raising its policy rate by 25 basis points surged to about 87% from around 59% a week earlier.
The rise in rate hike bets fed an ongoing rout in government bonds. The benchmark 10-year yield rocketed 19.1 basis points for the week to end at 4.975%, coming within striking distance of the 5% level on Friday.
Core funds and tech ETFs bear the brunt
Net outflows across the three biggest funds tracking the S&P 500 totaled $3.23 billion, driven largely by a $31.11 billion exodus from the iShares Core S&P 500 ETF. According to Jefferies analysts led by Steven DeSanctis: "This past week, IVV saw a very chunky withdrawal."
The Invesco QQQ Trust, which tracks the tech-heavy Nasdaq 100, saw outflows of $588.6 million this week, reversing from an inflow of $2.62 billion the previous week. Tech stocks tend to be weighed down as rate hike expectations and borrowing costs rise, since the value of their future profits falls.
Consumer discretionary and high yield funds also hit
Consumer discretionary ETFs saw equity outflows of $528.3 million this week, a sector that can see an outsized impact from higher rates as consumer spending and borrowing capacity take a hit. Elsewhere, high yield fixed-income ETFs saw outflows of more than $900 million for a second straight week amid the extended bond rout.
Still, as many ETFs saw inflows as outflows on the week. Total Market funds kept taking in cash, Financials rebounded, and Low Volatility and Health Care funds also drew dollars.
Source: Investing.com
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