Data from LSEG Lipper showed that the weekly inflow was the largest since 6 May. The movement reflected increased caution among investors as political developments and questions about the returns on AI infrastructure investment unsettled financial markets.
Democrats secured control of both chambers of Congress in Tuesday’s midterm elections, raising expectations of greater regulatory scrutiny of the technology sector. The prospect of tighter oversight added to existing concerns about the large amounts of capital being committed to data centres, advanced processors and other infrastructure supporting AI development.
Those concerns contributed to a sharp decline in US equities on Thursday. The Nasdaq Composite fell 5.52%, while the S&P 500 and Dow Jones Industrial Average dropped 4.36% and 3.44%, respectively. Technology, industrials, and communication services funds recorded net outflows during the reporting week.
Technology funds experienced withdrawals of $160.23 million, while industrials and communication services funds recorded outflows of $624.67 million and $965.68 million, respectively. Financials and healthcare attracted inflows of $1.3 billion and $1.09 billion, indicating a shift towards sectors perceived as offering more defensive exposure.
The movement was not an across-the-board retreat from equities. US equity funds attracted $14.81 billion in net inflows, reversing the previous week’s $6.54 billion outflow. Large-cap funds received $10.35 billion, while multi-cap and small-cap funds also recorded positive flows. Mid-cap funds, however, experienced net withdrawals.
Bond funds attracted a further $7.31 billion, their strongest weekly inflow in four weeks. Longer-maturity government and Treasury funds received significant allocations, suggesting that investors were also positioning for changes in interest-rate expectations and seeking greater portfolio stability.
The flows underline a market reassessment of risk rather than a complete rejection of technology investment. Investors are increasingly weighing the cost of AI expansion against the time required for companies to generate sufficient revenue and cash flow from the infrastructure being built.
Attention will now turn to inflation data, corporate earnings and technology companies’ capital expenditure plans. The durability of money market inflows, alongside subsequent equity and bond allocations, will help indicate whether the shift towards defensive positioning represents temporary caution or a broader change in investment strategy.
