6-week inflows to bonds? Biggest ever; 7-day inflows to cash? $142.9 billion; Policy panic now 'inevitable' - BofA's Hartnett

March 24, 2023 8:15 AM EDT
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(Updated - March 24, 2023 8:17 AM EDT)

As much as $142.9 billion went to cash in the week to Wednesday (March 22), according to the data presented by Bank of America. $2.6B and $0.9B went to stocks and gold, respectively, while outflows from bonds were $1.2B.

Inflows to cash were the biggest since March 2020 when investors reacted frantically to the emerging COVID-19 pandemic. Similarly, inflows to bonds in the last 6 weeks of $29.3B were the largest ever.

As far as stock flows were concerned, the tech sector saw the 5th straight week of inflows ($0.9B) while the market also witnessed the largest weekly inflow to growth funds ($3.5B) in 15 months.

“Inflation set to fall sharply, oil down, rates down, PMIs stabilizing, housing reacting to lower rates, lots of job openings still to fill…bears shouldn’t be dogmatically bearish 15 months into bear market,” commented Bank of America strategist Micahel Hartnett.

He believes that the stock market will attempt to print new lows in the next 3-6 months given “history, positioning, policy & profits reasons.” As a result, Hartnett reiterated his prior view that the S&P 500 should be sold on any rally to 4100-4200 amid “bearish sentiment + inevitable policy panic to end regional bank run.”

Based on history, the ongoing bear market should have ended October 19, 2022, with S&P 500 at 3005, Hartnett adds. The strategist also argues that tech stocks are unlikely to benefit from recession and job losses. He reminds investors that Nasdaq fell >50% in ‘08/’09 recession.

“It’s now a longer-than-normal bear market but policy intervention meant bear was never allowed to be big in price (SPX low was 3577); and biggest bull market recoveries (on average 40% in 1 year, 54% in 2 years after lows) occur only after the biggest declines.”

Finally, the strategist says we may be witnessing another bubble, this time in money market funds with an AUM of over $5.1 trillion. The last 4 weeks saw $300B added to these funds.

“Prior 2 surges ’08/’20 coincided with big Fed cuts,” BofA’s top investment strategist concluded.

By Senad Karaahmetovic

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