Ahead of the Federal Reserve's decision, investors have flocked to U.S. money market funds, selling U.S. stock funds for the second consecutive week

As the Federal Reserve's policy decision approaches, risk-averse sentiment has dominated the flow of funds in the U.S. market. Investors are significantly withdrawing from high-risk stock funds and instead parking large amounts of money in safer money market funds to cope with the impending market uncertainty.

According to Reuters on the 9th, citing data from LSEG Lipper, as of the week ending December 3, investors net purchased approximately $104.75 billion in U.S. money market funds. This marks the largest single-week net inflow for this type of asset since November 5, indicating that the market has adopted a highly defensive stance ahead of the Federal Reserve's policy statement on Thursday.

Meanwhile, despite widespread expectations that the Federal Reserve may cut interest rates, investors remain cautious against the backdrop of overvalued large-cap tech stocks. U.S. stock funds faced a net sell-off of approximately $3.52 billion that week, marking the second consecutive week of net outflows, with a significant increase in preference for safe-haven assets.

In the bond market, the inflow of funds has slowed considerably. U.S. bond funds attracted only $314 million, the smallest weekly inflow since October 1, further confirming the wait-and-see atmosphere across various assets ahead of key policy decisions.

Stock Funds Experience Continuous Outflows, Defensive Sectors Show Resilience

Although expectations of interest rate cuts typically favor the stock market, investors are reducing their exposure to risk assets. Data shows that U.S. stock funds have experienced net selling for the second consecutive week. Market analysis indicates that the valuations of large-cap tech stocks appear stretched due to prior gains, reinforcing the trend of investors shifting from the stock market to safer assets.

By market capitalization, stock funds of different sizes have all faced redemptions. Mid-cap funds have seen net outflows for the seventh consecutive week, amounting to $494.92 million. Large-cap and small-cap funds have also not been spared, recording net disposals of $476 million and $1.18 billion, respectively. This indicates that the cautious sentiment in the market is not limited to specific sectors but is showing a broad contraction characteristic.

In the context of overall market sell-offs, specific industry sector funds have demonstrated relative resilience, attracting approximately $510 million in net inflows for the second consecutive week. Specifically, funds are flowing into sectors with defensive or inflation-hedging attributes during this period. Industrial sector funds received $510 million in capital injection, while gold and precious metals stock funds recorded a net inflow of $293 million.

The performance of the fixed income market also reflects investors' cautious attitudes. Although there was still a net inflow overall, the scale has significantly shrunk.

Funds are still rotating vigorously among different categories of bonds. Short- to medium-term investment-grade bond funds gained a net inflow of $1.45 billion, and municipal bond funds also saw an inflow of $737 million. In contrast, short- to medium-term government and treasury funds experienced a reversal, recording an outflow of $1.58 billion, indicating that investors are also making defensive adjustments in their bond portfolio allocations