The Fed delivered a best-case scenario for stocks: BofA

Investing.com -- U.S. stocks saw their third-largest inflow of 2024, with $33.8 billion moving into the asset class last week, Bank of America said in a report Friday.

The U.S. large-cap sector was the key driver, attracting $26.2 billion. Notably, value stocks posted their largest inflow since December 2023 at $4.2 billion, while small-cap stocks saw inflows of $3.9 billion. Growth stocks followed with $1.9 billion in inflows.

Globally, equity funds attracted $38.6 billion, marking strong momentum across various regions. U.S. stocks led the way, while Japan saw $1.4 billion in inflows.

Emerging markets continued their positive streak with $1.3 billion, extending their run to 16 weeks of inflows. On the other hand, European equities registered their fourth consecutive week of outflows at $0.8 billion.

On the macroeconomic front, BofA strategists said that Wall Street “loves “panic cuts” when no panic,” referring to the 50-basis point interest rate reduction the Federal Reserve announced this week.

Strategists said the Fed opted for a more aggressive cut as it “wants to slash real rates to prevent recessionary small biz sector cutting jobs.”

They also argue that the Federal Reserve’s expected cuts, totaling 250 basis points, could fuel 15-20% earnings per share growth in 2025. BofA emphasizes that it doesn’t “get much better than that for risk so investors [are] forced to chase.”

Should the Fed manage to successfully orchestrate a “soft landing” for the U.S. economy, BofA sees international stocks and commodities as “best plays.”

The former are more attractively priced and are starting to outperform, strategists said. In addition, both international stocks and commodities “benefit from thaw in geopolitical tensions,” they added.

Meanwhile, the bond market recorded $15.5 billion in inflows last week, making it 39 consecutive weeks of positive flows.

Source: Investing.com