BofA strategists say hard landing is coming as investors flee to cash

Money market funds were the primary beneficiaries of end-of-quarter flows, according to Bank of America equity strategists, citing data from EPFR Global.

Cash attracted inflows of $70.8 billion, equities saw modest inflows of $3.3B, while bonds experienced outflows of $2.5B, and gold faced outflows of $1.1B in the week ending October 4th.

“Bonds and stocks oversold, but investors have sold neither bonds nor stocks in 2023, everyone ‘bearish’ but nobody ‘sold’,” the strategists wrote in the report.

They refer to $158B inflows into Treasuries and $110B inflows into stocks year-to-date. BofA remains cautious about risk assets, expecting a hard landing due to the high cost of money and the anticipation of capitulation selling.

However, the Wall Street brokerage believes that a recession or credit event could trigger bullish policy easing and lead to a significant rally.

Despite strong selling, there was no capitulation in Treasuries, as inflows continued for the 34th consecutive week at $4.6B. High-yield bonds experienced their fifth consecutive week of outflows, the largest since March, at $7.0B.

On the stocks front, consumer stocks saw the largest two-week outflow since February 2014, totaling $2.1B. Meanwhile, utilities received their largest inflow since November 2022, at $500 million.

In a regional breakdown of equities, the United States had its second consecutive week of inflows at $3.9B, while emerging markets experienced their third week of inflows, amounting to $200M.

Japan saw its fourth week of inflows at $1.2B, while Europe had its 30th consecutive week of outflows, totaling $1.8B.