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U.S. equity funds witnessed a record erosion in their net assets in the second quarter of this year, as stocks slumped due to soaring inflation and rising expectations of aggressive rate hikes by major central banks.
Data from Refinitiv Lipper showed U.S. equity funds’ net assets shrank by $2.1 trillion to $9.2 trillion in the quarter ended June, the biggest quarterly drop ever.
The decliners were led by Vanguard Total Stock Market Index Fund;Inst + and SPDR S&P 500 ETF Trust which lost $77.5 billion and $70.5 billion of their net assets respectively, while Vanguard 500 Index Fund;Admiral gave up $69.3 billion.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| VIIIX | n.a. | n.a. | n.a. | n.a. |
| SPY | SPDR S&P 500 ETF | 384.96 | +7.05 | +1.87% |
| VFIAX | n.a. | n.a. | n.a. | n.a. |
The tech-heavy Nasdaq Composite and the broader S&P 500 Composite index declined 22.4% and 16.45% respectively in the second quarter, marking their biggest January-June percentage drop since the financial crisis.
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A picture illustration shows U.S. 100 dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao/File Photo/File Photo (REUTERS/Yuriko Nakao/File Photo/File Photo / Reuters)
U.S. equity mutual funds also registered an average fall of 15.3% in their net assets values between April and June this year.
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The Federal Reserve has already lifted interest rates three times this year, and is expected to do another 75 basis points later this month.
WASHINGTON – JANUARY 22: The Federal Reserve building is seen January 22, 2008 in Washington, DC. (Photo by Chip Somodevilla/Getty Images) (Photo by Chip Somodevilla/Getty Images / Getty Images)
Those expectations of aggressive rate hikes have given rise to fears of a global recession as corporates are hit by higher borrowing costs and lower profit margins in a note a recession could cause the S&P 500 index to fall by 19% to 3,150 by the end of 2022, and a sharp contraction in the price-earnings ratio.
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Red trend line indicates the stock market recession period (iStock)
“This peak to trough price decline of 34% would be slightly more severe than the historical average recession decline of 30%.”
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The weekly data from Lipper showed U.S. equity funds witnessed outflows for the third week in a row in the week ended July 13.
