Investors Pull $5.46 Billion from U.S. Equity Funds Amid Trade Tensions

U.S. equity funds saw another wave of redemptions last week, with investors pulling $5.46 billion amid growing trade policy uncertainty and the specter of higher borrowing costs.

According to Reuters, the latest outflow—marking the second consecutive week of equity fund losses—comes as markets react to renewed tariff threats from President Donald Trump and ongoing confusion over the legality of those measures. 

The prior week saw even steeper equity losses, with $11.02 billion in redemptions.

Small-cap funds were hit hardest, with $2.39 billion in net outflows—their worst performance since April 30, according to Reuters. Large-cap and mid-cap strategies also declined, shedding $1.02 billion and $451 million, respectively. Investors allocated $1.46 billion into sector-specific equity funds, those focused on technology and industrials, which drew $1.4 billion and $499 million in inflows.

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The defensive shift extended to fixed-income, where U.S. bond funds recorded $6.98 billion in net inflows—their sixth straight week of gains. Short to intermediate-term investment-grade bonds saw the most interest, attracting $1.89 billion in new capital, while government bond funds pulled in $1.55 billion. However, money market funds reversed course, losing $24.91 billion following $21.37 billion in inflows the previous week.

The latest reallocation of capital comes amid fresh legal chaos around Trump's tariff strategy.

A federal appeals court on Thursday stayed a ruling from the U.S. Court of International Trade (CIT) that had temporarily blocked Trump's tariffs under the International Emergency Economic Powers Act (IEEPA). The original CIT decision, issued just one day earlier, found the president lacked authority under IEEPA to impose sweeping tariffs—raising doubts about the future of Trump's "America First" trade agenda.

The appeals court's stay effectively reinstates the tariffs while it considers arguments from both sides. President Trump responded on Truth Social, criticizing the CIT's decision as a threat to executive power and urging the Supreme Court to intervene.

Peter Navarro, Trump's former top trade adviser, told reporters that the administration is weighing "all strategic options" to preserve its tariff powers, CNN reported. "We think we have a very good case," Navarro said, according to CNN, adding that the tariff agenda remains "alive, well, healthy and will be implemented to protect" American jobs and industries.

The legal whiplash has intensified investor unease just as inflation remains sticky and interest rates show no immediate signs of falling. Markets are now attempting to price in not just rate policy but also a volatile and unpredictable trade landscape.

Analysts warn that a prolonged legal fight over tariffs—combined with political messaging from both parties—could keep markets on edge well into the summer. In the meantime, fund flows suggest investors are seeking shelter in bonds and select sectors while backing away from broader equity exposure.

With nearly $16.5 billion yanked from U.S. equity funds over the last two weeks alone, the pressure on risk assets may not let up until there is greater clarity on both trade policy and interest rates.

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