Mass outflows hit every asset class as recession fears climb
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Global equity funds had $5.2 billion of outflows in the week to May 18, led by redemptions from mutual funds.
Investors fled most major asset classes in the past week, with U.S. equities and Treasuries a rare exception to the massive exodus, amid concerns that tightening monetary policy will push leading economies into a recession.
Global equity funds had $5.2 billion of outflows in the week to May 18, led by redemptions from mutual funds, although U.S. stock funds managed to attract a small $300 million inflow, according to Bank of America Corp.’s note citing EPFR Global data. Bond fund outflows reached $12.3 billion, with only Treasuries and government debt seeing additions. Investors also exited cash and gold.
Stocks have lost nearly $12 trillion in market value since a peak in March as investors dumped risk assets amid a flurry of concerns spanning hawkish central banks and surging inflation. In BofA’s monthly fund manager survey released earlier this week, fears of a recession trumped the tail risks from inflation and the war in Ukraine, with investors turning the most underweight equities in two years.
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Although strategists ranging from David J. Kostin at Goldman Sachs Group Inc. to Marko Kolanovic at JPMorgan Chase & Co. have said fears of an imminent recession are overblown, the likes of Morgan Stanley and BofA say that the equity market rout has further to go.
While BofA’s custom Bull & Bear indicator tumbled to an “unambiguous” contrarian buy signal for stocks, strategists led by Michael Hartnett reiterated their recommendation to sell any bear rallies. The S&P 500 has attempted to recover this week after flirting with bear market territory, but the bounce has proved short-lived, and the benchmark is set for its longest weekly losing streak since 2001.
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Hartnett said that in 19 U.S. equity bear markets over the past 140 years, the S&P 500 saw an average decline of 37.3% with an average duration of 289 days. If repeated, BofA said the latest bear market would end in October, with the S&P 500 at 3,000 points — about 23% below current levels, and the Nasdaq at 10,000 points — 16% lower from here.
“3,600 is the new bull case,” Hartnett wrote in the note, referring to the S&P 500 level, which would mean 7.7% downside from here.
Among equity funds in the past week, U.S. stocks saw $300 million inflows, followed by $200 million of additions to Japanese shares, while European stocks extended their outflows to a 14th week. Investors piled into U.S. large-caps and growth stocks, while exiting value and small-caps. Among sectors, utilities and real estate led the inflows, while financials, materials and energy saw outflows.
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