U.S. equity funds experienced a significant rise in outflows for the week concluding on Jan. 15, as the prospects for Federal Reserve rate reductions this year appeared to have diminished while investors remained wary of the current quarterly earnings season.
As per LSEG Lipper data, investors pulled out a considerable $8.23 billion from U.S. equity funds during the week, following a net withdrawal of $5.01 billion in the previous week.
U.S. stock prices increased after a core inflation figure lower than anticipated and strong quarterly results from companies such as JP Morgan and Goldman Sachs. However, apprehensions persisted that potential tariffs from President-elect Donald Trump on Mexico, Canada, and escalated tariffs on China could lead to increased inflation and hinder long-term growth.
By category, investors exited from large-cap, mid-cap, multi-cap, and small-cap funds, amounting to $4.35 billion, $1.54 billion, $1.02 billion, and $379 million, respectively.
Sectoral funds faced outflows of $428 million, reversing a net purchase of $35 million a week earlier. Nonetheless, the financial sector maintained interest, attracting approximately $752 million in net investments over the week.
In contrast, U.S. bond funds attracted inflows for the second time out of the last five weeks, totaling $6.18 billion on a net basis.
U.S. general domestic taxable fixed income funds, short-to-intermediate government and treasury funds, along with loan participation funds saw notable inflows of $2.33 billion, $2.15 billion, and $1.42 billion, respectively.
Simultaneously, investors withdrew a net $60.07 billion from money market funds, marking the end of a three-week streak of net purchases.
China informed the International Monetary Fund on Thursday that its economy expanded by 5% in 2024, stated IMF Chief Economist Pierre-Olivier Gourinchas to reporters, labeling the news a “positive surprise” compared to the IMF’s prediction of 4.8%.
Gourinchas noted that the IMF had slightly raised its forecast for Chinese growth to 4.6% for 2025 and by four-tenths of a percentage point to 4.5% for 2026, indicating some momentum due to fiscal measures, although this was tempered by uncertainties surrounding trade policies.
He emphasized that China, being the world’s second-largest economy, needed to enhance domestic demand as a key driver of its growth, a recommendation frequently communicated by the IMF to Chinese officials, but which has yet to be realized.
“The Chinese economy must shift to a more domestically-driven growth model,” Gourinchas remarked during an online news conference on Friday, adding that relying solely on external trade for expansion would increasingly prove challenging.
“China is an enormous economy, and it cannot depend solely on the rest of the world to foster its domestic growth,” he stated, noting that while some measures had been taken by Chinese officials to address this, further efforts are required.
Any downturn in the Chinese economy could have ripple effects on numerous emerging and developing markets, representing a risk factor for the global economy, he cautioned.
The IMF predicted that Chinese growth would stabilize at 4.5% by 2026 as trade uncertainties eased and increased retirement ages mitigated the decline in the labor supply of the country.
In September, China’s highest legislative authority approved initiatives to extend the retirement age for men from 60 to 63 and for women in white-collar professions from 55 to 58. For women in blue-collar positions, it increased the retirement age to 55 from 50.