Investors Pour $5.78 Billion into US Equity Funds as Inflation Eases

U.S. equity funds experienced their largest weekly inflow in eight weeks, driven by investor optimism about potential Federal Reserve rate cuts following softer-than-expected inflation data and subdued jobs reports. In the seven days leading up to May 15, investors injected a net $5.78 billion into U.S. equity funds, the highest amount since March 20, according to data from LSEG. This influx was buoyed by Wednesday's report indicating a slowdown in U.S. consumer prices, which heightened market expectations for two rate cuts by the end of the year. U.S. large-cap funds were the primary beneficiaries, drawing about $5.38 billion, marking the largest net weekly inflow since March 27. Multi-cap funds also saw positive inflows, attracting about $1.05 billion. However, mid- and small-cap funds did not fare as well, with net outflows of $817 million and $191 million, respectively. Sectoral equity funds received a modest $22 million after six weeks of consecutive outflows, reflecting a cautious but slightly improved sentiment among investors. Market Overview:

• U.S. equity funds experience their largest weekly inflow since March, driven by expectations of potential Federal Reserve rate cuts.

Key Points:

• Investors poured a net $5.78 billion into U.S. equity funds in the week ending May 15th.
• This surge follows recent data indicating a slowdown in inflation and a slightly tighter-than-expected labor market.
• Large-cap funds saw the most significant inflows, while mid- and small-cap funds witnessed net outflows.
• Sectoral preferences shifted towards industrial, financial, and utility stocks, with tech experiencing net selling.

Looking Ahead:

• The sustainability of this inflow may depend on future economic data and the Fed's monetary policy decisions.
• Investors seeking growth stocks (XLK) may remain cautious until a clearer picture emerges on rate cuts
• Small-cap investors (IWM) might wait for confirmation of a more accommodative Fed policy before re-entering the market.

Industrial, financial, and utilities sector funds saw notable net inflows, attracting $515 million, $385 million, and $359 million, respectively. Conversely, the tech sector faced significant net selling, with outflows amounting to $757 million. This divergence underscores a shifting investor focus towards more traditionally stable sectors amidst ongoing market volatility and economic uncertainty. In addition to equities, U.S. bond funds continued to attract inflows for the fourth consecutive week, adding around a net $2.39 billion. Investors allocated $815 million to U.S. loan participation funds, $812 million to general domestic taxable fixed income funds, and $698 million to short/intermediate government and treasury funds. However, short/intermediate investment-grade funds saw a significant pullback, with net outflows of $1.18 billion, the largest since November 8, 2023. Money market funds also experienced smaller inflows, attracting a net $2.56 billion, the smallest in the past month.