BofA's Hartnett sees a 'high' risk the S&P 500 overshoots in Q1

Investing.com -- Cash contributed the majority of money flows last week, while crypto funds attracted another jumbo inflow, Bank of America revealed Friday.

Money market funds absorbed $136.4 billion in the week to December 4, marking the largest weekly inflow since March.

Stocks attracted $8.2 billion, bonds $4.9 billion, and crypto $3 billion, while $400 million exited gold, according to a Bank of America note citing EPFR Global data.

Most notably, crypto funds achieved their largest-ever four-week inflow of $11 billion, reflecting renewed investor appetite for digital assets following Donald Trump’s win in the recent US election.

Michael Hartnett, a strategist at BofA, flagged signs of "froth" in crypto markets as Bitcoin’s market capitalization exceeded $2 trillion, making it the 11th largest economy globally.

Similarly, concerns about equity valuations were highlighted, with the S&P 500’s price-to-book ratio at 5.3, surpassing the peak seen in March 2000.

Hartnett warned that the risk of an "overshoot" in the S&P 500 in Q1 2024 is “high,” citing potential moves toward 6,666 on the index as the US dollar breaks parity with the euro .

On macro, the strategist said the Federal Reserve will likely ease rates at its meeting on Dec. 18 unless November US payrolls exceed 275,000 and Average Hourly Earnings (AHE) grow by more than 0.3%.

Regionally, US equities posted their ninth consecutive week of inflows at $8.2 billion, while emerging markets saw inflows resume with $600 million.

On the other hand, European equities experienced their tenth straight week of outflows at $5.1 billion, and Japanese equities recorded their third consecutive week of outflows at $600 million.

In fixed income, investment-grade bonds extended their streak to 58 weeks of inflows, garnering $7.3 billion.

High-yield bonds added $500 million, maintaining a 17-week streak of inflows. Treasury funds, however, resumed outflows, losing $4.4 billion, while emerging market debt and TIPS also saw outflows of $300 million each.

Bank loans attracted $1.1 billion, marking their ninth straight week of inflows, and municipal bonds added $100 million, maintaining a 23-week streak.

Source: Investing.com