BofA Says Stock Outflows Are Catching Up to Market Despair

(Bloomberg) — Fund flows are starting to add evidence that investors are throwing in the towel on stocks, according to Bank of America Corp strategists.

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Investors have pulled cash from global equity-focused mutual funds for at least five weeks, yanking $4.5 billion in the most recent period, according to the bank, which relies on EPFR Global data.

To Bank of America strategists led by Michael Hartnett, it shows that flows are catching up with the market’s pessimism. In the bank’s global fund manager survey, a record net 58% of survey participants said they’re taking lower-than-normal risks.

To be sure, it’s an early trend and the data over a longer time span still shows that flows have been relatively resilient, given the selloff in equities. For the full year, investors have added $177 billion to stock funds.

Before there can be a bull run in stocks, investors need to see inflation and bond yields peak, as well as a change in the Federal Reserve’s hawkish policy by 2023, said Hartnett. That’s unlikely without a big recession, so he recommends investors sell the S&P 500 at 4,200, a level about 5% above the last close.

The S&P 500 is up 5.6% so far in July, which would be the biggest monthly advance since October. The index is still down 16% for the year.

Here are some more highlights from Bank of America’s flows report. The data is for the week through July 20.

  • About $8.2 billion left bonds, the first outflow in three weeks

  • Cash inflows were $3.5 billion

  • In terms of equity flows by style factors, US large caps saw inflows

  • Small cap, growth and value had outflows in the week

  • Health care and consumer led inflows among sectors, while materials and energy had the biggest outflows

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