U.S. Equity Funds Face Outflows Amid Investor Caution Over Tech Valuations and Economic Impact of Historic Government Shutdown

In the week ending November 26, 2025, U.S. equity funds experienced a net outflow of $4.56 billion, marking the first withdrawal in six weeks. This shift is attributed to investor concerns over elevated technology stock valuations and the lingering economic effects of a historic 43-day government shutdown.

Despite the S&P 500 rising over 3% during the week, market sentiment remained cautious. Large-cap funds saw a $144 million outflow, ending five consecutive weeks of gains, while mid-cap and small-cap funds experienced combined outflows totaling $2.58 billion. In contrast, U.S. bond funds attracted approximately $8.6 billion in inflows for the eighth consecutive week, with short-to-intermediate government and treasury funds notably drawing $4.05 billion, the highest since late September. Additionally, U.S. money market funds rebounded with $25.28 billion in inflows after two weeks of losses.

The 43-day U.S. government shutdown, from October 1 to November 12, 2025, significantly impacted the economy. The Congressional Budget Office (CBO) estimated that each week of the shutdown reduced annualized real GDP growth by 1 to 2 percentage points in the fourth quarter of 2025. A six-week shutdown was projected to cost $28 billion in economic output, with cumulative losses between $7 billion and $14 billion through 2026.

Treasury Secretary Scott Bessent acknowledged an $11 billion permanent economic loss due to the shutdown but expressed confidence that the U.S. economy would avoid a recession. He noted that interest rate-sensitive sectors like housing experienced downturns, but overall economic growth remained intact, supported by easing interest rates and upcoming tax cuts.

Investor sentiment has been cautious, influenced by concerns over inflated technology stock valuations and the economic repercussions of the prolonged government shutdown. Despite the S&P 500's 3% rise during the week ending November 26, the net outflow from equity funds indicates underlying apprehension. Conversely, the continued inflow into bond funds suggests a shift towards safer assets amid market volatility.

The government shutdown led to the furlough of approximately 900,000 federal employees and required another two million to work without immediate pay. Essential services were disrupted, and sectors like tourism and travel faced significant challenges. For instance, Thanksgiving air travel plans were notably affected, with a 4.48% year-over-year drop in bookings by November 24, 2025.

This 43-day shutdown is the longest in U.S. history, surpassing the previous record of 35 days during the 2018–2019 shutdown. The economic impact has been more pronounced due to the extended duration and the concurrent challenges in the technology sector.

The recent net outflow from U.S. equity funds underscores the complex interplay between investor sentiment, economic policies, and unforeseen disruptions like government shutdowns. Understanding these dynamics is crucial for stakeholders aiming to navigate the evolving financial landscape.