Rate cuts are ‘not a likely spark for equity buying', BofA says

Cash continued to dominate inflows last week, seeing significant allocations across all major asset classes, Bank of America revealed today's report. Cash inflows over the past three weeks reached a cumulative $145.3 billion, the largest since January.

During the week ending Aug. 21, money market funds drew $37 billion in inflows, equity funds attracted $20.4 billion, while bond funds saw $15.1 billion.

At the same time, gold had its largest inflow in four weeks at $1.1 billion, and cryptocurrencies captured $200 million.

U.S. equities witnessed their biggest inflow in five weeks, totaling $12.6 billion while emerging market equities saw their 12th consecutive week of inflows, the longest streak since February, with $4.7 billion.

The technology sector, despite an eighth consecutive week of positive flows, recorded the smallest inflow during this period at $0.5 billion.

BofA said its private clients, holding $3.7 trillion in assets under management, currently allocate 62.1% to stocks, 20.0% to bonds, and 11.1% to cash, following the largest weekly move into cash over the past three months.

Strategists led by Michael Hartnett said rate cuts are “not a likely spark for equity buying” from the $6.2 trillion in money market assets and $2.5 trillion in private equity cash. They point out that historically, the first Federal Reserve rate cut has preceded “more cash inflows in a “soft” landing” scenario, while bonds typically emerge as the winners in case of a hard landing.

BofA also highlights that “5 of 6 Powell Jackson Hole speeches saw the S&P 500 drop 7.5% on average in the next 3 months.”

Looking further ahead, the bank sees inflation as a growing risk for 2025, driven by factors such as geopolitics, strikes, protectionism, and the influence of AI and renewables on higher CPI.

Regionally, Japan saw a resumption of outflows last week, losing $500 million, while Europe recorded its second consecutive week of inflows at $400 million.

By style, U.S. large-cap stocks received $10.2 billion in inflows, and U.S. small caps garnered $2.1 billion, whereas value stocks experienced a $1.6 billion outflow.

In fixed income, investment-grade bonds marked their 43rd week of inflows at $8.1 billion, high-yield bonds had their second consecutive week of inflows at $2.4 billion, bank loans recorded their fourth consecutive week of outflows at $500 million, Treasuries saw their 16th week of inflows at $4.7 billion, and emerging market debt had its fourth week of outflows at $300 million.

Source: Investing.com