U.S. Equity Funds See Strong Inflows for Second Consecutive Week
Investors in U.S. equity funds had a lot to celebrate as they closed out the year with strong inflows for a second consecutive week. According to LSEG Lipper data, U.S. equity funds attracted approximately $16.89 billion in net investments during the week ending December 31. This comes on the heels of a robust $18.3 billion in inflows the previous week, signaling a positive end to a year marked by solid gains driven by artificial intelligence.
The major U.S. stock indexes also finished the year on a high note, with the S&P 500 gaining 16.39%, the Nasdaq rising 20.36%, and the Dow Jones Industrial Average climbing 12.97%. These impressive annual gains marked the third consecutive year of positive returns for these indexes.
Analysts are optimistic about the outlook for corporate earnings in the coming year, with data covering 2,784 U.S. large- and mid-cap companies showing an expected earnings growth of 15.13% in 2026, up from 12.92% forecasted for 2025. This positive outlook is likely contributing to the strong investor interest in large-cap equity funds, which saw net purchases of $16.87 billion in the most recent week.
However, investors showed less enthusiasm for small-cap and mid-cap funds, divesting $1.42 billion and $269 million, respectively. Sectoral funds also saw modest net sales of $116 million, with healthcare and financials facing outflows of $502 million and $290 million, respectively.
In a surprising move, investors withdrew $2.09 billion from U.S. bond funds after 12 consecutive weeks of net investments. This includes a reversal in flows for U.S. short-to-intermediate government and treasury funds, with $5.43 billion being pulled out, undoing a massive $7.68 billion net purchase from the previous week.
On the other hand, general domestic taxable fixed-income funds and short-to-intermediate investment-grade funds saw inflows of $1.17 billion and $920 million, respectively, indicating a continued interest in certain segments of the fixed-income market.
Investors also sought the safety of money market funds, allocating a substantial $83.71 billion in the largest weekly net purchase in four weeks. This move reflects a cautious approach as investors navigate uncertain market conditions.
Overall, the strong inflows into U.S. equity funds and the positive outlook for corporate earnings suggest that investors are optimistic about the prospects for the year ahead. As we head into a new year, it will be interesting to see how these trends evolve and impact the broader financial markets.
(Reporting by Gaurav Dogra; Editing by Gareth Jones)
