January 9, 2019 / 8:48 PM / 6 months ago

U.S. stock, bond funds leak $30.4 bln in ominous start to 2019

    By Trevor Hunnicutt
    NEW YORK, Jan 9 (Reuters) - Investors demanded cash back
from U.S.-based funds for a 13th straight week, showing
increased concern over economic growth as stock and bond returns
disappointed, Investment Company Institute (ICI) data showed on
    People withdrew $30.4 billion from U.S.-based mutual funds
and exchange-traded funds (ETFs) on a net basis during the week
ended Jan. 2, including $14.2 billion from bonds and $11.3
billion from stocks, the trade group said.
    Investors have been preparing in recent weeks for the
Federal Reserve to further tighten monetary policy as the United
States and China spar over trade, making a recession more
    During the week studied by ICI, Apple Inc warned
that iPhone sales in the holiday quarter were weak due to slower
sales in China, a bad omen for the coming earnings season.
 The widely owned company's shares fell nearly 10
percent the following day.
    Some investors view elevated withdrawals as a contrarian
signal that now is the time to buy.
    In the days since the withdrawals, stocks have staged a
rebound after Fed chair Jerome Powell said on Friday that
policymakers "will be patient" as they watch how the U.S.
economy performs. Those remarks and others by Fed officials
signaled that further rate hikes are on hold for now.
    While recent withdrawals are less than a percent of these
funds' overall assets, investment products focused on equities
likely posted record monthly outflows in December, according to
earlier estimates from Lipper, a research service. More cash was
pulled from bond funds over the latest seven days than at any
point in nine weeks, ICI data showed.
    Bond funds would normally attract interest when people flee
the stock market. But tight monetary policy, ballooning U.S.
budget deficits and record levels of U.S. corporate debt are
raising the specter of losses in debt markets, too.
    The high-yield "junk" bond market, which has been a leading
indicator of recessions, is flashing "yellow" now, Jeffrey
Gundlach, chief executive of Doubleline Capital LP, said on a
Tuesday webcast. 
    Gundlach described U.S. government debt as "a completely
horrific situation," saying the United States could be at a
"tipping point."
    The U.S. government spent more than it made from taxes to
stimulate the economy following the 2007-09 global financial
crisis. More recently, Washington cut individual and corporate
taxes, adding to the country's debt.
    "Are we growing at all or is it all just the increase in
debt?" Gundlach asked.
    The following table shows estimated ICI flows for mutual
funds and ETFs (all figures in millions of dollars):
                 1/2/2019  12/26/2018    12/19    12/12    12/4
 Equity           -11,293     -21,078  -10,613  -17,488   4,585
    Domestic       -6,254     -11,747   -2,646  -11,950   5,392
    World          -5,038      -9,331   -7,968   -5,539    -807
 Hybrid            -5,419      -8,268   -9,572   -5,497  -3,446
 Bond             -14,164      -9,314  -12,534  -12,025  -5,244
    Taxable       -14,069     -10,227  -12,013  -12,203  -4,609
    Municipal         -96         913     -521      178    -635
 Commodity            478         707      390      155    -321
 Total            -30,398     -37,953  -32,329  -34,856  -4,426
 (Reporting by Trevor Hunnicutt; editing by Jonathan Oatis)
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