BofA strategist warns of stock stress as flows go flat in 2023

(Bloomberg) — The three-year run of investors pouring money into stocks is on steam, according to a note from Bank of America Corp.

Most read from Bloomberg

Strategist Michael Hartnett cited data on Friday showing investors are taking money out of stocks and putting it into money market funds and bonds. Equities saw outflows of $3.9 billion in the week through May 24 — a third consecutive week of redemptions, meaning flows are now flat for the asset class in 2023, according to a note from the bank that EPFR Global- cites data.

So far this year, approximately $756 billion in cash has come in — the largest addition since 2020. And as more of the effects of the Federal Reserve’s rate hike campaign feed through to markets and financial conditions tighten, “we expect another onslaught of risk departure to return at the end of June,” Hartnett wrote in the note.

After rising more than 8% in the first four months of the year, the S&P 500 reversed in May as the US faces a default and recession concerns mount. Stock index futures rose Friday as Republican and White House negotiators reportedly moved closer to an agreement to raise the debt limit.

The picture for wealth flows in 2023 is starting to look very different from the pattern of recent years. Equity funds have recorded inflows of $175 billion, $949 billion and $182 billion respectively over the past three years, according to BofA strategists.

Hartnett, who correctly predicted last year’s stock market decline, has recommended selling the S&P 500 at 4,200 – about 1% above the index’s last closing price.

Not everyone agrees. The strategists of Citigroup Inc. On Friday, U.S. stocks raised to neutral on expected boost from artificial intelligence, the likelihood of Federal Reserve rate hikes approaching close and resilient economic growth.

Other highlights from the note from Bank of America strategists include:

  • Global bond funds saw $9.5 billion inflows for the ninth straight week

  • US equity funds had $1.5 billion outflows, while $1.9 billion left European equities

  • Stylishly, US large-cap and small-cap funds drew inflows, while money flowed out of growth and value funds

  • Tech led industry inflows with $500 million, while energy and materials had the largest outflows

–With help from Michael Msika.

(U.S. stock futures updates in fourth paragraph.)

Most read from Bloomberg Businessweek

©2023 Bloomberg LP

Leave a comment