The Fed's rate cut sparked a buying frenzy as mutual fund investors regained their confidence in the stock market.
Investors poured a net $13.26 billion into all equity mutual funds over the five business days ended Wednesday, according to TrimTabs Investment Research of Santa Rosa, Calif. That was more than five times as much as the $2.64 billion they contributed the previous week.
Most of the activity followed the Federal Reserve's larger-than-expected rate cut on Tuesday. It lowered the fed funds rate by 50 basis points, while many people had been expecting a 25-basis point cut.
Jerry Vigil, a programmer at TrimTabs, says the week saw the largest single-day inflow in mutual funds since Jan. 4, 2001. "We had a really big inflow right after the Fed decision," he says.
Domestic stock funds were the biggest beneficiaries, pulling in $8.49 billion, net of redemptions, compared with $568 million the previous week.
But investors also stepped up their purchases of funds that invest primarily in non-U.S. stocks, which took in a net $4.76 billion, up from $2.07 billion during the previous week.
Not surprisingly, bond funds, which had been benefiting from safe-haven buying amid the mortgage crisis, lost some of their allure following the rate cut. Investors contributed just $453 million, compared with $3.24 billion the previous week.
The story was similar with hybrid funds, which invest in both stocks and bonds. They took in $194 million, just a fraction of the $1.39 billion added the previous week.
Exchange-traded funds that invest in U.S. stocks took a big leap, with investors putting in $22.42 billion during this past week, up from $1.93 billion a week earlier.
ETFs that invest in non-U.S. stocks had inflows of $2.03 billion, up from $233 million during the previous week.
Dow Jones Industrial Average
closed at 13,815.56 Wednesday, up 3.8% from 13,308.39 last Wednesday.