Largest Inflow to Equities Since March, Investors Continue to Focus on Europe as Tech Outflow Continues - BofA's Flows

June 18, 2021 8:25 AM EDT

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BofA’s “Flow Show” showed investors have continued to invest in stocks in the past week with as much as $39 billion flowing into equities. This marks the largest inflow in stocks since March this year.

European stocks, in particular, are still attracting strong attracting from US clients with an inflow of $3.3 billion representing the biggest one since early 2018. The past week also marked the largest inflow to IG since February ($12.6 billion), as well as the sixth consecutive week of tech selling ($4.4 billion - worst streak since Jan’19).

Elsewhere, BofA recorded inflows of $16 billion to bonds, $78 million to gold, with $54.9 billion redemption from cash (biggest since Dec’20).

BofA’s Chief Investment Strategist Michael Hartnett comments:

“BofA FMS investors bullishly positioned for permanent growth, transitory inflation, peaceful Fed via longs in commodities, cyclicals & financials into June FOMC,” he writes in a note sent to clients.

“Fed flipped from dovish to hawkish, conceding zero rates & $4bn of asset purchases every day perhaps incompatible with a. stocks/bonds/housing prices at all-time highs, b. GDP +15%, retail sales +40%, payrolls artificially low CPI annualizing 8%, c. new social & economic goal of reducing inequality.”

“An "easy Fed" has been an "easy trade", and a “good news = good news” market in H1; in H2 the shift from QE to QT accelerates...QE (Fed, ECB, BoJ, BOE) set to fall $8.5tn in ‘20 to $3.4tn in ‘21 to $0.3tn in ’22...19 rate hikes thus far in ’21 vs 5 in ’20 (8 rate cuts vs 195 last year); so in H2 “good news = tighter liquidity = bad news”...low/negative stock/credit H2 returns,” he adds.

Hartnet concludes that the Q3 correction likely, and “perhaps necessary to test that secular inflation trade uptrend is for real).”

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