BofA Says Investors Flee From Stocks as Hard Landing Signs Grow

Global equity funds had outflows of $16.9 billion in the week through Sept. 20, according to a note from the bank citing EPFR Global data. US stock funds led the exodus, while in Europe, redemptions reached 28 weeks.

The team led by Michael Hartnett said persistently high interest rates could lead to a hard economic landing in 2024, and result in “pops and busts” in financial markets. The “tells” are already appearing, Hartnett wrote in the note dated Sept. 21 — including a steepening yield curve, a rise in both the unemployment rate and personal savings, and higher defaults and delinquencies.

The strategist has remained bearish even with the S&P 500 up about 13% this year to 4,330. The rally has tempered since late July, with risk demand taking a bigger hit this week as the Federal Reserve signaled it could keep interest rates higher for longer. The S&P 500 and the technology-heavy Nasdaq 100 are both heading for their biggest monthly decline since December.

Other market strategists including JPMorgan Chase & Co.’s Marko Kolanovic have also warned about the risks to the US equity rally from higher real rates and the restrictive cost of capital. Morgan Stanley’s Michael Wilson said this week that clients perceive a tougher outlook for stocks in 2024. BofA’s Hartnett said an important sign for the trajectory of stocks will be the reaction in this year’s market leaders once bond yields drop. If lower yields spark another rally in US homebuilders and chipmakers, it’s “Bull5000,” but if they can’t generate gains, “it’s sell the last rate hike and back to ‘Bear4000,’” the strategist said.Global bond funds have a 26th straight week of inflows at $2.5 billion, while $4.

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BofA lifts S&P 500 2023-end target by 7%, led by 'old economy' stocksThe S&P 500 is up 15.7% so far this year, largely driven by a rally in a handful of mega-cap growth stocks such as Nvidia and Meta that have ridden the artificial intelligence (AI) boom. While the rally has been moderating, BofA remains in 'neutral' to 'positive' territory on U.S. stocks, with a bias towards equal-weighted stocks, strategists led by Savita Subramanian said. An equal-weight index assigns uniform weights to each constituent, unlike a market capitalization-based index, like the S&P 500, where bigger companies tend to have an outsized influence.
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