US Equity Funds Bounce Back on Inflation Cool-Down and Holiday Rally
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US equity funds enjoyed a significant influx of cash last week, rebounding from the previous week's sell-off, as reported by Reuters. The positive shift was attributed to a combination of factors, including a lower-than-expected inflation report, the passage of a stopgap funding bill averting a government shutdown, and the traditional "Santa Claus rally" often seen in the final week of December.
According to LSEG Lipper data, US equity funds received net inflows of $20.56 billion for the week ending December 25, marking a significant turnaround from the previous week's $49.7 billion in net sales.
This shift in investor sentiment was fueled by Friday's Commerce Department report showing that the PCE price index rose only 0.1% in November, undershooting analyst expectations. This unexpected development ignited hopes for further Federal Reserve rate cuts in the coming year, bolstering US stock market performance. The "Santa Claus Rally," a phenomenon often associated with a year-end surge in stock prices, further contributed to the positive trend.
Investor focus, however, remained concentrated on large-cap US equities, with these funds attracting a net $31.67 billion, the highest weekly inflow since October 2. This stands in stark contrast to the previous week's $20.94 billion in net sales for this segment.
Smaller-cap equities fared less well, with net outflows recorded for small-cap, mid-cap, and multi-cap funds, totaling $2.95 billion, $1.17 billion, and $853 million, respectively.
Sectoral equity funds also witnessed net outflows of $2.14 billion, with healthcare and consumer discretionary sectors leading the losses at $495 million and $476 million, respectively.
US bond funds continued their downward trend, recording net outflows of $5.42 billion for the second consecutive week. Notably, US emerging markets debt, short-to-intermediate investment-grade bonds, and municipal debt funds all experienced net sales during this period. Conversely, short-to-intermediate government and treasury funds bucked the trend, attracting $957 million in net inflows.
Meanwhile, US money market funds saw a dramatic shift in sentiment, attracting a net $41.72 billion, a stark reversal from the previous week's $27.31 billion in net sales.