NEW YORK, October 17, 2025 — U.S. equity funds saw a strong rebound in investor inflows during the week ending October 15, reversing a sharp sell-off the week before, as optimism over Federal Reserve rate cuts and solid corporate earnings lifted market sentiment.

According to LSEG data, investors poured a net $1.04 billion into U.S. equity funds, recouping nearly a quarter of the $4.45 billion withdrawn the previous week. The return of inflows reflects renewed confidence in the stock market amid easing economic concerns and upbeat third-quarter earnings.

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Fed Signals and Earnings Drive Renewed Optimism

Investor appetite was revived after Federal Reserve Chair Jerome Powell signaled that further interest rate cuts could be on the horizon, boosting risk-on sentiment across Wall Street.

Stronger-than-expected earnings reports from Morgan Stanley (MS.N) and Bank of America (BAC.N) also buoyed investor morale, signaling that the banking sector remains resilient despite slowing global growth and lingering trade uncertainties.

The week’s inflows marked a key turnaround following investor jitters about U.S.-China trade tensions, tariff risks, and a potential government shutdown, all of which had weighed heavily on sentiment earlier in the month.

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Sectoral Funds Lead the Recovery

Sector-specific funds were among the biggest beneficiaries of the rebound. Investors poured $4.39 billion into U.S. sectoral funds, marking a fourth consecutive week of inflows into these targeted investments.

The technology and financials sectors led the charge, attracting $1.18 billion and $920 million, respectively. Analysts attribute the strength to robust corporate earnings, expectations of lower borrowing costs, and sustained demand for AI and fintech-related assets.

“Tech and financial stocks are once again at the center of investor optimism,” said one market strategist. “Earnings strength combined with potential rate cuts has reignited interest in cyclical sectors.”

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Mixed Trends in Market-Cap Segments

Not all equity fund categories shared the same enthusiasm. Large-cap funds recorded $2.42 billion in outflows, while small-cap funds lost $114 million over the week.

In contrast, mid-cap funds drew $495 million in net inflows, suggesting that investors are selectively reallocating capital toward sectors and companies that may benefit from a soft-landing economic scenario.

The preference for mid-cap exposure signals confidence in companies positioned between stability and growth — often seen as potential outperformers in a low-rate environment.

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Bond Funds Maintain Strong Momentum

The flight to fixed income continued as U.S. bond funds attracted $6.49 billion in inflows for the second consecutive week. Investors sought to capitalize on falling yields and potential rate cuts, which generally boost bond prices.

• Short-to-intermediate investment-grade funds led with $2.13 billion in inflows.
• Short-to-intermediate government and treasury funds attracted $890 million.
• Municipal debt funds added $678 million, reflecting continued demand for tax-advantaged fixed-income assets.

The data suggests a balanced investor approach — maintaining exposure to equities for growth while hedging with quality bonds amid macroeconomic uncertainty.

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Money Market Funds Reverse Trend

Meanwhile, U.S. money market funds saw a sharp $20.98 billion outflow, ending a three-week streak of inflows. The movement suggests that investors are rotating out of cash-equivalent instruments and back into higher-return assets such as equities and bonds.

The shift aligns with investor expectations that interest rates will continue to decline through early 2026, reducing the relative appeal of short-term deposits.

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Outlook: Rate Cuts and Earnings Momentum to Support Markets

Analysts predict that the combination of a dovish Federal Reserve, healthy corporate balance sheets, and moderate inflation will support continued inflows into U.S. equities through year-end.

However, uncertainty around trade negotiations, fiscal policy, and geopolitical tensions could still trigger volatility in the coming weeks.

“The market is pricing in optimism,” said an analyst at LSEG. “But sustained inflows will depend on whether the Fed follows through with its rate cuts and whether the earnings momentum continues.”

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Key Highlights:

• U.S. equity funds saw $1.04 billion in inflows after last week’s sharp outflows.
• Fed Chair Powell’s rate-cut signals and strong bank earnings fueled optimism.
• Sectoral funds gained $4.39 billion, led by tech and financial stocks.
• Bond funds posted $6.49 billion in inflows for the second straight week.
• Money market funds experienced $20.98 billion in outflows as investors rotated into risk assets.