By Marcus Weyerer, Director, ETF Investment Strategy, Franklin Templeton
While we caution investors not to overinterpret what we believe to be naturally volatile data points, some observations are worth highlighting. Global Technology ETF flows have swung from approximately US$12.8 billion of inflows in July (+1.2 standard deviations versus trend) to US$6.9 billion of outflows in August month-to-date (-3.1 standard deviations) — one of the sharpest reversals in our current ETF-flow data. In fact, technology sector ETFs are on track for only their third month of net outflows since February 2025. Small-cap ETFs, by contrast, have collected more than US$3.1 billion in August so far, putting them on track for one of their strongest months over the past two years.
Growth ETFs have still gathered around US$16.6 billion in August so far, firmly in line with trend. The distinction is important: absolute equity demand remains substantial, but the marginal flow signal has shifted away from the technology and mega-cap leadership that dominated earlier phases of the bull market.
That is also largely consistent with the market broadening we have seen over the past 18 months. Recent Franklin Templeton Institute research shows that participation has already expanded materially across market capitalisations, styles and geographies, and the next phase may bring greater selectivity and volatility.
The other two tests this week come from rates.
The 10-year U.S. Treasury yield is now around 4.7%, close to the upper end of our 4.25%–4.75% expected range,[1] having traded closer to 4% several months ago. That rise has increasingly brought the long end of the curve into the valuation debate. At the same time, markets are still becoming accustomed to a relatively new Fed chair and reaction function.
Treasury Secretary Scott Bessent has meanwhile effectively revived elements of Operation Twist, buying longer-dated Treasuries. The initial size is modest—around US$2 billion—but the potential signalling effect matters, particularly with further purchases expected from September aimed at improving liquidity.
Against that backdrop, core PCE (Personal Consumption Expenditures) may be the week’s most important scheduled macro release. The Franklin Templeton Institute’s 2026 core-PCE forecast is 3.0%–3.5%, versus 3.3% in June.[2] A softer reading could relieve some pressure on longer-term yields; renewed inflation strength would keep alive the possibility that policy stays restrictive for longer.
A higher bar, not a broken bull case
The common theme is that the bull market now faces a higher bar.
PCE needs to provide reassurance on inflation. Jackson Hole needs to give investors greater clarity on the Fed’s reaction function.
ETF flows suggest investors are already becoming more selective rather than simply more bearish. Technology demand has deteriorated in the short term, but substantial capital continues to enter equities, including small-caps, and participation remains broader than the mega-cap trade alone.
That could ultimately be healthy. A market supported by broader earnings growth— even if this week’s results remain one of the most important information events for the entire market.
