By Patrick Keon
In what was a wild week of trading, the Dow Jones Industrial Average (+65.87 points) and the S&P 500 Index (+8.35 points) each managed to register gains of 0.4% for the week. Market activity for the week was bracketed by two days of superior results; the Dow and the S&P posted combined gains of over 4% on both the first and last trading days of the week. That was enough to offset the approximately 3% loss both indices suffered on Tuesday, September 1.
Tuesday's sell-off, which represented the third worst performance of the year for U.S. stocks, was triggered by continued fears about the economic situation in China. Additional poor economic data from China (its manufacturing purchasing managers index fell to a three-year low) again raised concerns that the world's second largest economy was headed toward an extended slowdown. The U.S. markets rallied on the first and last trading days of the week on a combination of factors: strong U.S. economic data, rising oil prices, and China's taking steps to calm its volatile market. U.S. second quarter GDP was revised sharply upward (to 3.7% from 2.3%), which gave rise to speculation the Federal Reserve could still impose an initial interest rate hike in September, despite the turmoil in China. Oil prices bounced during the week after an extended downturn left them at six-year lows. News of decreasing oil reserves was the cause for the rally, which saw the U.S. and global oil benchmarks (West Texas Intermediate Crude and Brent Crude) both appreciate more than 20% from their respective recent lows. Despite Tuesday's activity, China's moves to stabilize its market did have a positive impact around the globe. The U.S. market was buoyed at the start of the week by news that China planned to put in controls to limit the yuan's weakening versus the dollar. The markets also closed the week strengthened by additional measures from China, which stated it would tighten trading rules on stock index futures and foreign exchange derivatives in an effort to solidify its market.
The net outflows for the week from money market funds (-$10.3 billion) was only the third time during the third quarter the group had suffered losses. The positive flows performance this quarter has reduced the year-to-date net outflows for money market funds to approximately $40 billion. Institutional Treasury money market funds were responsible for the lion's share of the week's net outflows; $12.1 billion net left their coffers.
For equity funds, ETFs accounted for all the net inflows (+$4.8 billion) for the week, while mutual funds saw net outflows of $865 million. The ETF activity was dominated by SPDR S&P 500 ETF Trust (SPY), which took in over $7.2 billion of net new money. For mutual funds-in a continuation of this year's trend-nondomestic equity funds (+$746 million) experienced positive net flows, while domestic equity funds (-$1.6 billion) saw money leave.
It was a tale of two cities for taxable bond funds: ETFs took in $4.3 billion of net new money, while mutual funds experienced net outflows of $4.4 billion. The outflows were widespread on the mutual funds side, but Lipper's High Yield Funds (-$714 million) and Loan Participation Funds (-$451 million) classifications were hit the hardest. The biggest contributors to the positive flows for ETFs were SPDR Barclays 1-3 Month T-Bill ETF (BIL, +$845 million), iShares 1-3 Year Treasury Bond ETF (SHY, +$698 million), and iShares 7-10 Year Treasury Bond ETF (IEF, +$573 million).
The $545 million of net outflows for municipal bond mutual funds marked their sixth straight week of outflows. Funds in Lipper's national municipal bond fund classifications were responsible for $460 million of the outflows.
