Global equity markets saw a surge in investor demand last week, with inflows climbing to their highest level in nearly a year on renewed optimism that the U.S. Federal Reserve may begin cutting interest rates sooner than expected. According to data from LSEG Lipper, global equity funds attracted a net $49.19 billion in the week through October 1, the strongest inflow since November 2023, following softer economic signals from the United States that reignited hopes for policy easing.

Renewed Confidence in U.S. Markets

The bulk of the inflows went into U.S. equity funds, which recorded $36.41 billion in net new investments, their largest weekly gain in almost 11 months. The rally was fueled by an inflation report that showed price increases in line with expectations, coupled with weaker-than-forecast private payrolls data. Together, these indicators strengthened the case for the Fed to pivot toward rate cuts, easing pressure on borrowing costs and improving prospects for equity valuations. European and Asian equity markets also benefitted, with net inflows of $7.36 billion and $3.94 billion respectively, underscoring the broad-based nature of investor optimism.

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Sectoral Flows Highlight Tech and Financials

Equity sectoral funds reported their strongest weekly performance since January 2022, absorbing $11.56 billion. Technology and financials led the charge, attracting $4.15 billion and $3.43 billion respectively, as investors positioned themselves in sectors most likely to benefit from lower interest rates and continued earnings momentum. Ned Davis Research further fueled investor confidence by upgrading its global equity outlook from “neutral” to “overweight,” raising stock allocations to 60% of portfolios from 55% while cutting cash exposure to 5% from 10%. The firm pointed to seasonal strength, cooling inflation, and steady corporate earnings as drivers of the more optimistic stance.

Bond Markets and Alternative Assets

Global bond funds remained in demand for the 24th consecutive week, although net inflows slowed to $6.06 billion, a 14-week low. Euro-denominated bond funds and high-yield bonds drew strong interest with inflows of $7.37 billion and $2.41 billion, respectively. In contrast, short-term bond funds saw a reversal with $8.52 billion in outflows after 13 straight weeks of gains, suggesting a shift in positioning as investors anticipated a lower-rate environment. Money market funds attracted $8.84 billion, marking their first positive week in three, as investors balanced risk exposure with short-term liquidity. Meanwhile, gold and precious metals funds posted their sixth consecutive week of inflows, drawing $4.66 billion as geopolitical uncertainty and hedging demand kept the asset class attractive.

Mixed Sentiment in Emerging Markets

In emerging markets, the picture was less uniform. Equity funds recorded $239 million in net outflows, snapping a 10-week streak of gains. The move suggested caution around capital allocation in higher-risk markets despite a supportive global environment. Bond funds in emerging economies, however, remained resilient, securing $373 million in inflows.

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Outlook

The latest wave of equity inflows signals that investors are regaining confidence in global markets as inflation pressures ease and central banks, led by the Federal Reserve, appear closer to pivoting toward monetary loosening. Still, the uneven flows into emerging markets and the continuing appeal of gold suggest that while optimism is building, caution remains in the face of macroeconomic and geopolitical risks.

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