Tariff tantrum hits U.S. stock funds in latest week

NEW YORK (Reuters) – U.S. fund investors pulled $9.8 billion from stocks during the latest week, Lipper data showed on Thursday, halting the investments’ budding momentum after February’s selloff.

The withdrawals, recorded during the seven days through March 7, came as U.S. President Donald Trump announced plans to impose import tariffs on steel and aluminum. The expected tariffs were seen raising the likelihood of a trade war that could stunt growth and stoke inflation.

Before the trade measures, U.S.-based equity funds had taken in cash for two straight weeks, following an early-February selloff also tied to inflation fears.

Following that 10 percent slide in the S&P 500 index, these equity funds posted record withdrawals of $23.9 billion, Lipper said.

“Trump and the tariffs create more uncertainty,” said Pat Keon, senior research analyst for Thomson Reuters’ Lipper research unit. “We went through a mess of geopolitical tensions last year, and the markets just kept going up and up and up. They seemed impervious to it. This year, not so much.”

Real estate sector funds, seen as particularly vulnerable if inflation forces the U.S. Federal Reserve to raise interest rates aggressively, were hit by $577 million in withdrawals, the most since June 2017.

Bonds did not fare better, with taxable bond mutual funds and exchange-traded funds (ETFs) overall recording $898 million of withdrawals during the week, according to Lipper. Low-risk money market funds took in $12.7 billion. Inflation erodes the value of a bond’s typically fixed payout.

Meanwhile, cracks are showing in demand for some funds that have been popular with investors.

U.S.-based funds that invest in stock markets abroad, for instance, have been a popular bet, drawing $176 billion in new cash in 2017.

Yet during the most recent week, European-focused funds posted their largest withdrawals since December 2017 and Japanese-oriented funds recorded the most outflows since July 2017, with a combined $691 million pulled from both.

Corporate investment-grade bond funds, which reeled in $227 billion in 2017, posted $740 million in withdrawals during the latest week, the data showed. High-yield bond funds marked their eighth week of outflows, with $525 million drained out of them.