Tariff Fears Spark Massive Outflows from US Equity Funds

The recent escalation in trade tensions has sent shockwaves through the US equity market, with investors fleeing in droves. The week ending March 5 saw the largest outflow from US equity funds in four weeks, as tariff concerns and a tech sector selloff drove a net $9.54 billion out of the market. This exodus, the largest since a $10.71 billion withdrawal a month ago, underscores the growing unease among investors about the economic fallout from President Donald Trump's aggressive trade policies.

The tech sector, a traditional bellwether for market sentiment, bore the brunt of the selloff. Net outflows from technology funds reached $1.9 billion, the largest weekly net sales since December 2021. Industrials and financial sectors also saw significant outflows, with $1.13 billion and $788 million leaving these sectors, respectively. This flight to safety is further evidenced by the massive inflows into money market funds, which saw a net $46.77 billion in purchases during the week. Investors also favored US debt securities, snapping up a net $5.4 billion worth of bond funds for the ninth consecutive week.



The data from LSEG Lipper paints a similar picture. During the fund-flows week that ended January 3, 2024, investors were overall net purchasers of fund assets for the ninth week in 11, adding a net $56.2 billion. However, equity funds suffered outflows over the week, with a net $3.9 billion leaving the sector. This trend suggests that investors are becoming increasingly cautious about the prospects for the US equity market.

The broader economic implications of these outflows are concerning. The tech sector, which has been a significant driver of economic growth in recent years, is particularly vulnerable to these outflows. A sustained selloff in the tech sector could lead to job losses and reduced investment in innovation, which could have long-term implications for the US economy.

The shift towards money market funds and US debt securities indicates that investors are seeking safer havens for their capital. This flight to safety could lead to a reduction in liquidity in the equity markets, potentially causing a further decline in stock prices. The data from LSEG Lipper also supports this analysis. During the fund-flows week that ended January 3, 2024, investors were overall net purchasers of fund assets for the ninth week in 11, adding a net $56.2 billion. However, equity funds suffered outflows over the week, with a net $3.9 billion leaving the sector. This trend suggests that investors are becoming increasingly cautious about the prospects for the US equity market.



The potential long-term implications of these outflows on the US equity market and the broader economy are significant. The data from Reuters indicates that U.S. equity funds witnessed the largest weekly outflow in four weeks in the week to March 5, driven by a tech sector selloff and escalating trade war fears. This outflow amounted to a net $9.54 billion, highlighting a substantial shift in investor sentiment. The tech sector, in particular, experienced $1.9 billion in outflows, which is the largest weekly net sales since December 2021. This trend suggests that investors are becoming increasingly risk-averse and are moving away from high-growth sectors like technology.

The broader economic implications are also concerning. The shift towards money market funds and U.S. debt securities indicates that investors are seeking safer havens for their capital. For instance, money market funds saw a net $46.77 billion in purchases during the week, and U.S. debt securities attracted a net $5.4 billion in inflows. This flight to safety could lead to a reduction in liquidity in the equity markets, potentially causing a further decline in stock prices.

Moreover, the outflows from U.S. equity funds could have a ripple effect on the broader economy. The tech sector, which has been a significant driver of economic growth in recent years, is particularly vulnerable to these outflows. A sustained selloff in the tech sector could lead to job losses and reduced investment in innovation, which could have long-term implications for the U.S. economy.

The data from LSEG Lipper also supports this analysis. During the fund-flows week that ended January 3, 2024, investors were overall net purchasers of fund assets for the ninth week in 11, adding a net $56.2 billion. However, equity funds suffered outflows over the week, with a net $3.9 billion leaving the sector. This trend suggests that investors are becoming increasingly cautious about the prospects for the U.S. equity market.

In summary, the outflows from U.S. equity funds could have significant long-term implications for the U.S. equity market and the broader economy. The shift towards safer investments and the potential for reduced liquidity in the equity markets could lead to a further decline in stock prices and a reduction in economic growth. The tech sector, in particular, is vulnerable to these outflows, which could have long-term implications for innovation and job growth in the U.S. economy.