Stock NYSE US stock market
A trader at the New York Stock Exchange. Goldman Sachs says a recession could cause the S&P 500 index to fall by 19% by the end of 2022. Image Credit: Reuters

US equity funds witnessed a record erosion in their net assets in the second quarter of this year, as stocks slumped due to soaring inflation and rising expectations of aggressive rate hikes by major central banks.

Data from Refinitiv Lipper showed US equity funds’ net assets shrank by $2.1 trillion to $9.2 trillion in the quarter ended June, the biggest quarterly drop ever.

The decliners were led by Vanguard Total Stock Market Index Fund-Inst + and SPDR S&P 500 ETF Trust which lost $77.5 billion and $70.5 billion of their net assets, respectively, while Vanguard 500 Index Fund-Admiral gave up $69.3 billion.

The tech-heavy Nasdaq Composite and the broader S&P 500 Composite index declined 22.4 per cent and 16.45 per cent, respectively, in the second quarter, marking their biggest January-June percentage drop since the financial crisis.

US equity mutual funds also registered an average fall of 15.3 per cent in their net assets values between April and June this year.

The Federal Reserve has already lifted interest rates three times this year, and is expected to do another 75 basis points later this month.

Those expectations of aggressive rate hikes have given rise to fears of a global recession as corporates are hit by higher borrowing costs and lower profit margins.

Goldman Sachs said in a note a recession could cause the S&P 500 index to fall by 19 per cent to 3,150 by the end of 2022, and a sharp contraction in the price-earnings ratio.

“This peak to trough price decline of 34 per cent would be slightly more severe than the historical average recession decline of 30 per cent.” The weekly data from Lipper showed U.S. equity funds witnessed outflows for the third week in a row in the week ended July 13.