Investors Poured More Money Into Stocks in Past 5 Months Than Last 12 Years, Says BofA, Analysts Worried About Stretched Valuations

April 9, 2021 9:05 AM EDT

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In a note sent to clients, Michael Hartnett, the chief investment strategist at BofA Securities, shares a mind-boggling stat: inflow to stocks past 5 months stood at $576 billion, which exceeds inflow in prior 12 years by over 27% ($452 billion).

This stat is likely to increase fear of a pullback as major US and European indexes trade at record highs.

“Goldilocks and melt-up are popular terms this week and we think that can be seen through market valuation. We remain optimistic but there’s less upside left in our view,” said Emmanuel Cau, head of European equity strategy at Barclays.

In a note issued this week, analysts at Deutsche Bank expect a pullback between 6% to 10% over the next three months. According to BofA, equity asset allocations are still at a record 63.6%.

“You should definitely be worried about valuations and all the more so when people start justifying extremely high valuations. We are risk-on, but we haven’t put our foot down on the accelerator because of valuations in some parts of the market,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.

In the past week, investors poured $22.7 billion to cash, $17.0 billion to bonds, $15.6 billion to stocks, and about half a billion $0.5 billion out from gold, Hartnett adds in a note.

In the equities market, the market witnessed the 3rd consecutive week of tech outflow and the largest inflow to REITs since November 2019. Similarly, BofA flows show the largest inflow to bank loans since April 17 ($1.2 billion).

“Sentiment is in very worrisome territory as is valuation, yet money flows continue to push indices higher,” said Tobias Levkovich, Citi’s chief U.S. equity strategist.

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Deutsche Bank, Citi, Barclays, Tobias Levkovich