U.S. stock fund flows rebounded in the latest week, providing succor to markets after multibillion dollar withdrawals in the prior week, data from trade group Investment Company Institute (ICI) showed on Wednesday. Equity funds based in the United States pulled in $27.3 billion during the week ended June 14, driven chiefly by demand for exchange-traded funds (ETFs).
Debt funds attracted $7.7 billion in their 25th straight week of inflows, ICI said. Mutual funds are heavily favored by retail investors, while ETFs draw an increasingly diverse set of clients, including fast-trading hedge funds.
The heavy buying helped take the pressure out of a market grappling with weaker oil prices, soft economic data, a rotation out of go-go technology names and an interest rate hike by the U.S. Federal Reserve, the second this year.
Stock fund outflows were $7.7 billion the week before. Yet market volatility has remained below its historical averages.
"There's a lot of complacency in the market," said Neil Constable, head of the global equity team at GMO LLC. "It feels a lot like late 2006, early 2007."
In recent weeks the spread between short and long-term U.S. government bonds has narrowed, a "curve flattening" that could portend lower economic growth and inflation forecasts. The yield curve between five-year notes and 30-year bonds flattened to 96 basis points, the narrowest since December 2007.
Constable said fast-rising growth stocks have become increasingly expensive and investors should favor higher-quality shares that could hold up better if a market downturn comes.
Yet, by contrast, falling yields and a sinking premium for long-term bonds could boost growth stocks further. In that case, "this reach for yield trade, and this reach for growth trade, will continue to manifest," Constable said.
The following table shows estimated ICI flows for mutual funds and exchange-traded funds (all figures in millions of dollars):
6/14 6/7 5/31 5/24 5/17/2017