May 2, 2018 / 4:36 PM / 5 months ago

Wary U.S. fund investors pull back from domestic stocks: ICI

NEW YORK (Reuters) - U.S. fund investors backed off domestic stocks for a second straight week, greeting strong earnings with a shrug and fretting about the potential for a downturn, Investment Company Institute (ICI) data showed on Wednesday.

Traders work on the floor of the New York Stock Exchange, (NYSE) in New York, NY, U.S., April 30, 2018. REUTERS/Brendan Mcdermid - RC14619E0B20

Domestic stock fund demand weakened, with investors pulling $3.8 billion out during the seven days through April 25, according to the trade group.

First-quarter S&P 500 .SPX earnings are now expected to leap 25 percent over the prior year, according to Thomson Reuters I/B/E/S, with more than two-thirds of those companies having reported results.

Nearly 80 percent of the companies have beaten expectations, the most on records dating to 1994.

Credit Suisse Group AG (CSGN.S) analysts led by Jonathan Golub said this kind of earnings growth is unheard of during the later stages of an economic recovery. U.S. stocks have been rising for the better part of a decade.

Yet concerns about economic growth peaking, rising inflation and interest rates and a flattening yield curve are weighing on stocks, along with the potential for greater regulation of technology companies.

“While each issue has merit, we believe investors are under-estimating the market’s potential upside, and over-estimating risks,” the analysts wrote in a note on Wednesday.

Investors continued to turn to international equities and debt markets for relative safety despite the risk that stalling growth and rising rates could wreak havoc on those assets, too.

The benchmark U.S. 10-year Treasury yield US10YT=RR inched through the 3 percent level for the first time in four years on April 24, pushing bond prices down, and on the same day Caterpillar Inc’s (CAT.N) strong earnings were overshadowed by comments by an executive for the world’s largest heavy equipment maker that the profits are “the high watermark for the year.”

International-focused equity funds gathered $2.9 billion during the most recent week, marking nearly 17 months without withdrawals. Bond funds took in $2.3 billion, a tenth straight week netting cash, ICI said.

The following table shows estimated ICI flows for mutual funds and ETFs (all figures in million of dollars):

4/25 4/18 4/11 4/4 3/28/2018

Equity -879 -252 5,213 -4,501 -11,674

Domestic -3,777 -2,377 3,775 -6,018 -12,377

World 2,898 2,125 1,437 1,517 703

Hybrid -631 -1,089 -1,099 -930 -1,314

Bond 2,278 8,492 6,470 2,943 263

Taxable 2,338 9,321 7,166 3,053 136

Municipal -60 -830 -696 -110 126

Commodity 508 167 1,120 547 -332

Total 1,276 7,318 11,704 -1,941 -13,057

Reporting by Trevor Hunnicutt; Editing by Tom Brown

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