U.S. equity funds post weekly outflows as technology sector selling deepens

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U.S. equity funds outflows deepen

Highlights

U.S. equity funds recorded $3.53 billion in outflows for the week, partially reversing the previous week's $37.63 billion in net inflows.
Technology sector funds saw $20 billion in outflows, reversing $21.46 billion in inflows the previous week, amid concerns about valuations and debt-funded expansion.
Bond fund inflows slowed to $7.33 billion, an eight-week low, while money market funds posted $25.74 billion in net outflows—the most since April 15.

Fund flow data signals retreat from equities

According to Reuters, LSEG Lipper data showed investors pulled $3.53 billion from U.S. equity funds during the week, partly reversing net purchases of $37.63 billion in the prior week.

Sentiment is weakening as concerns grow over stretched valuations in the technology sector and debt-funded spending by major companies. Elon Musk's SpaceX joined other mega-cap names in tapping bond markets, adding to worries that the sector's investment boom is becoming increasingly reliant on borrowing.

Investor caution is also fuelled by expectations of a possible 25-basis-point Federal Reserve rate hike this year amid rising inflationary pressures.

Technology sector funds saw nearly $20 billion in outflows during the week, reversing the previous week's $21.46 billion in inflows. Financial, industrial and consumer discretionary sector funds also recorded notable weekly outflows of $1.06 billion, $830 million and $733 million, respectively.

Bond and cash allocations also weaken

Inflows into U.S. bond funds slowed to an eight-week low of $7.33 billion, suggesting fixed-income demand is also losing momentum.

Short-to-intermediate investment-grade funds, general domestic taxable fixed-income funds and municipal debt funds attracted $2.95 billion, $2.03 billion and $633 million, respectively, down from $3.09 billion, $3.39 billion and $1.19 billion in the previous week.

Money market funds recorded net weekly sales of $25.74 billion, their largest outflow since April 15. The combined moves across equity, bond and cash vehicles indicate investors are becoming more selective as they weigh higher-rate risks and the durability of technology-led market gains.

Our earlier article on the global retreat from technology and AI-linked stocks described a sharp sell-off that hit Asia hardest, with heavy losses in chipmakers and other AI beneficiaries. It highlighted how rising infrastructure and component costs, along with worries around major tech names and key AI backers, were testing confidence in the sector and making the rally look more fragile.

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