The bear market set a record. From April to June, U.S. equity funds’ net assets fell 18.6%, or $2.1 trillion, the largest quarterly loss in history for them.
The bear market in U.S. stocks that began this year continues to break records both in the amount of investor funds evaporating and in the rate at which money is fleeing falling assets. The S&P 500 broad market index lost 16.45% in the second quarter, but assets of funds investing in U.S. stocks appeared to have declined even more.
As reported on Monday, citing data from Refinitiv Lipper Reuters, in the second quarter, there was a record reduction in their net assets – by $2.1 trillion – to $9.2 trillion. This, as the agency notes, is the maximum quarterly loss for such funds in history.
In relative terms, this corresponds to a drop of 18.6%, clearly more than the S&P 500. But although it is called a broad market index, the market itself is much broader, and the real structure of fund ownership and investment is different from any index. In addition to the serious drop in stock prices, the size of assets was also affected by investors taking money out.
According to Refinitiv Lipper, last week was the third week in a row that saw an outflow of money from U.S. equity funds. Generally speaking, there have been longer series of outflows this year. This is entirely unsurprising given that the entire first half of the year was also one of the darkest in history for U.S. stocks.
For the S&P 500, the first six months of 2022 were its worst since 1970, losing 20.6% during that period. For the Dow Jones Industrial Average, down 15.3%, it was its worst start to a year since 1962. For the younger Nasdaq Composite, which appeared only in 1971, it was the weakest first half of the year ever (minus 29.5%).
The Vanguard Total Stock Market Index Fund, Inst +, SPDR S&P 500 ETF Trust and Vanguard 500 Index Fund, Admiral showed the biggest declines in absolute terms in the second quarter. They lost $77.5 billion, $70.5 billion and $69.3 billion in net assets, respectively.
The rest of the Top 10 funds by falling assets are, of course, among the largest by absolute size and represent such giants as Fidelity, Vanguard, BlackRock and others. And the top 9 places are occupied by index-tracking funds.
Obviously, against the backdrop of a falling market, the ability to track its dynamics as accurately as possible no longer seems as good an idea to everyone as it used to be. This, however, is commonplace and not really related to the type of funds. Back in the 1980s and 90s, studies were conducted to show that the public was constantly hurting itself.
At that time managers were taking higher commissions than they do now, and these commissions were also higher than at index funds, which gained popularity in recent decades. So their yields were generally supposed to be lower, but they still did show it (and not so small). But in fact, in the long-term, the mass investor got just a small share of it.
The reason was in constant attempts to guess the right moment to buy or sell stocks or other instruments, and also to choose a fund which would be best suited for this. After many attempts people, firstly, just did not guess, and secondly, paid much higher commissions, additionally reducing profitability. As a result, a strategy like “buy and hold” turned out to be an order of magnitude more effective. Now the stock industry has changed noticeably.
Gold prices creep lower as dollar, yields surge on hawkish Fedspeak
Investing.com– Gold prices fell in Asian trade on Tuesday, facing consistent pressure from a stronger dollar and higher Treasury yields as Federal Reserve officials reiterated the bank’s outlook for higher interest rates.
Minneapolis Fed President Neel Kashkari said in an address on late-Monday that he saw rates rising at least once more in 2023, and that they were likely to remain higher through 2024.
His comments echoed those made by Fed Chair Jerome Powell last week, who said that sticky inflation and a tight labor market will likely elicit one more rate hike this year. Powell also downplayed expectations for a large band of rate cuts next year, with the Fed’s target rate through 2024.
The outlook for higher rates dented gold’s prospects, given that higher yields push up the opportunity cost of investing in the non-yielding asset. This weighed particularly on the outlook for prices, with gold futures losing more than the spot price in recent sessions.
fell 0.1% to $1,913.62 an ounce, while expiring in December fell 0.2% to $1,932.25 an ounce by 00:02 ET (04:02 GMT). Both instruments were at a 11-day low.
Dollar at 10-mth peak, yields hit 16-year high with shutdown in focus
Pressure on metal markets came chiefly from a stronger greenback, as the Fed’s hawkish rhetoric pushed the to its highest level in 10 months against a basket of currencies.
Treasury yields also surged in the wake of the Fed’s meeting last week, with the at its highest since 2007.
Growing fears of a U.S. government shutdown did little to deter the dollar’s advance, with higher rates also increasing the greenback’s safe haven appeal over gold.
Congress has less than a week to pass a spending bill and avert a shutdown. But both Republican and Democrat leaders indicated little progress was being made towards reaching consensus.
While gold is a safe haven, it has seen little actual gains during past government shutdowns. The 2018-2019 shutdown, which was the longest in U.S. history at 35 days, only saw a $20 appreciation in spot prices.
Copper prices dip, China jitters persist
Among industrial metals, copper prices extended losses on Tuesday amid persistent concerns over an economic slowdown in China, the world’s largest copper importer.
Sentiment towards the country was dealt a fresh blow this week as beleaguered property developer China Evergrande Group (HK:) said it will be unable to issue new debt due to a government investigation. This ramped up concerns over more regulatory scrutiny towards the sector, which is already struggling with a three year-long cash crunch.
The property sector is also a key driver of copper demand. fell 0.1% to $3.702 a pound, and were close to 1-½ month lows.
Focus this week is now on data from China for more cues on business activity.
Oil prices inch lower as Fed, China fears dent outlook
Investing.com– Oil prices fell slightly in Asian trade on Tuesday amid growing fears that higher-for-longer U.S. interest rates will weigh on demand, while renewed concerns over China’s economy also dented sentiment.
Strength in the put a damper on oil prices, as hawkish signals from the Federal Reserve saw the greenback scale a 10-month peak, pushing up crude costs for international buyers.
Markets also grew increasingly wary of more increases in U.S. rates, which are expected to weigh on economic activity this year and potentially hurt crude demand. The Fed had recently warned that higher energy costs, in the wake of surging oil prices, will likely buoy inflation and further the need for higher rates.
In addition to Fed-related headwinds, oil markets were also grappling with renewed fears of an economic slowdown in China, the world’s largest oil importer, as analysts soured further on its growth prospects this year.
The negative trends saw traders question whether oil prices had the capacity for more gains, especially after they surged to 10-month highs earlier in September.
fell slightly to $91.69 a barrel, while fell 0.1% to $89.58 a barrel by 21:04 ET (01:04 GMT).
China fears persist amid GDP downgrades, PMIs awaited
A string of major brokerages and investment banks- most recently S&P Global and HSBC- downgraded their outlook for Chinese economic growth this year, with analysts warning that gross domestic product could only grow 4.8% in 2023- lower than the government’s 5% forecast.
The downgrades come just a few days before key Chinese (PMI) data for September, which is expected to show continued weakness in business activity.
While PMI readings for August had shown some improvement in manufacturing activity, service sector growth declined through the month.
Fears of a meltdown in the China’s massive property market also came to fore this week after embattled developer China Evergrande Group (HK:) warned that it was unable to issue new debt.
While China’s oil imports have remained largely robust this year, the country’s appetite for fuel has struggled to reach pre-COVID levels. Beijing also set higher fuel export quotas for the year, indicating that local demand remained weak.
On the supply front, expectations of tighter fuel markets in the northern hemisphere were slightly dented after Russia said its planned fuel export ban will be somewhat less severe than initially expected.
But oil markets are still expected to tighten substantially this year, following deep production cuts in Saudi Arabia and Russia. U.S. rig counts were also seen dropping to a 1-½ year low last week, while recent data showed a consistent decline in .
JPMorgan analysts expect oil prices to trend between $90 and $100 in the coming year.
Oil futures retreat amid global economic concerns and potential supply increases
Oil futures, which reached a peak in 2023 due to Saudi Arabia’s daily cut of 1 million barrels and restrictions imposed by Russia, have started to decline due to global economic anxieties and the Federal Reserve’s persisting high rates. This development comes despite expectations of a record 13.1 million barrels and an anticipated supply deficit by year-end.
The peak earlier this year was primarily influenced by Saudi Arabia’s decision to reduce its oil output by 1 million barrels per day, coupled with restrictions from Russia. However, recent global economic concerns and the Federal Reserve’s continued high rates have led to a downturn in oil futures.
Robert Yawger, an analyst at Mizuho, highlighted potential increases in oil supply. These include possible contributions from Iran, Iraqi Kurds via the Ceyhan pipeline, Suriname, and Guyana. These potential additions to the supply chain are significant factors to consider against a backdrop of a previously predicted $150 oil forecast.
Despite the anticipation of a record 13.1 million barrels and an expected supply deficit by the end of the year, these potential increases in oil supply could balance out the market dynamics. The evolving situation underscores the influence of global economic conditions and policy decisions on commodity markets.
Overall, these developments indicate that while production cuts and restrictions had previously driven oil prices to their peak in 2023, current global economic worries and potential increases in supply are exerting downward pressure on oil futures.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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