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 likely. 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.
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 US 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 US budget deficits and record levels of US corporate debt are raising the specter of losses in debt markets, too.