Global equity funds racked up significant inflows in the week to Feb. 14 propelled by investor optimism amid a robust stock market rally, despite lingering uncertainties over the Federal Reserve’s rate cut plans.
According to data from LSEG, investors acquired a net $9.12 billion worth of global equity funds during the week, marking their largest weekly net purchase since Dec. 27, 2023.
Investors raised their holdings as global stocks rallied to their two-year peaks this week.
The MSCI world stock index overcame a 1.1% dip early in the week, driven by a higher-than-expected U.S. inflation reading, to hit a new two-year peak of 752.55 on Friday.
The U.S. equity funds received $6.78 billion, the biggest weekly inflow in seven weeks.
Investors also purchased about $1.74 billion worth of Asian equity funds but sold European funds of a net $151 million.
Among sector funds, tech received $2.66 billion in a fifth successive week of net buying. Industrials and consumer discretionary sectors also drew about $277 million and $242 million, respectively.
Meanwhile, global bond funds garnered about $11.25 billion in net purchases, extending inflows into an eighth consecutive week.
Corporate bond funds drew $2.47 billion, the biggest inflow in four weeks, while government, and loan participation funds secured about $1.72 billion and $467 million, respectively, in net purchases.
At the same time, investors offloaded $41.48 billion worth of money market funds after two weeks of net buying in a row.
In commodities, investors withdrew $654 million out of precious metal funds, extending outflows into a seventh successive week. Energy funds also witnessed about $77 million worth of net selling.
Data covering 28,577 emerging market funds showed equity funds received $382 million, the first weekly inflow in five weeks, while bond funds had outflows, worth about $85 million on a net basis.
U.S. stocks fell on Friday with the Nasdaq showing the largest decline after a hotter-than-expected producer prices report eroded hopes for imminent interest rate cuts by the Federal Reserve.
A Labor Department report showed producer prices increased more than expected in January, feeding fears inflation was picking up after months of cooling. After five consecutive weeks of gains, all three indexes posted a weekly decline.
The data could encourage the Fed to wait before cutting rates. Earlier this week, a hot consumer prices report sparked a selloff in equity markets although a slump in January retail sales on Thursday stoked hopes of rate cuts.
“The inflation data this week are definitely going to keep the Fed at least on pause until summer,” said Carol Schleif, chief investment officer at BMO family office. “Data is bumpy, it’s not a straight line.”
Treasury yields spiked after the report as traders added to bets the Fed may defer the first rate cut until after June.
“The theme of higher for longer is really the continuing market narrative” for interest rates, said Greg Bassuk, Chief Executive Officer at AXS Investments.
Two Fed officials expressed caution. Atlanta Fed President Raphael Bostic said he needed more evidence inflation pressures are easing, but is open to lowering rates at some point in the next few months. San Francisco Fed President Mary Daly said “there is more work to do” to ensure stable prices, despite remarkable progress.
The S&P 500 lost 24.18 points, or 0.49%, to end at 5,005.15 points, while the Nasdaq Composite lost 132.38 points, or 0.83%, to 15,775.65. The Dow Jones Industrial Average fell 149.48 points, or 0.39%, to 38,623.64.
Most megacap stocks dropped, with Meta Platforms falling 2.2% and dragging the S&P 500 communication services index down 1.56%.