U.S. equity funds recorded net outflows of $1.42 billion in the week to February 11, marking the first weekly net sales since January 21, LSEG Lipper data showed. Market participants cited a combination of a stronger-than-expected jobs report that reduced the likelihood of near-term Federal Reserve rate cuts and renewed investor concern about corporate spending related to artificial intelligence as central drivers of the move.
Equity market breadth shifted unevenly. Large-cap funds absorbed the largest exits with net outflows of $12.34 billion, and mid-cap funds saw net redemptions of $787 million. Small-cap funds diverged from that pattern, attracting net inflows of $2.01 billion during the same period.
The Nasdaq Composite Index declined 2.03% on Thursday amid heightened investor worries over potential disruption from AI across multiple industries. Sectors highlighted by market participants as areas of potential AI-driven change included software, legal services and wealth management.
Investors were also awaiting January inflation figures due on Friday for further signals about the trajectory of interest rates and policy expectations.
Fixed income funds continued to see investor demand. U.S. bond funds received net purchases totaling $13.37 billion, extending a streak of net inflows to six consecutive weeks. Notable gains were concentrated in short-to-intermediate investment-grade funds with $4.29 billion in net inflows, short-to-intermediate government and treasury funds with $3.09 billion, and general domestic taxable fixed income funds which took in $2.7 billion.
Meanwhile, cash management vehicles experienced a sizable reversal. Investors withdrew $25.83 billion from U.S. money market funds after two straight weeks of net inflows.
Context and market implications
The recent flows reflect a rotation toward fixed income as rate-cut odds eased following labor market strength, while equity positioning was affected by sector-specific concerns tied to AI-related corporate spending. Market participants awaited incoming inflation data for additional clarity on the path for interest rates.