BofA: ’Q1 Recession Fears Melt Into Q2 Goldilocks Greed’

Investors were "dragged back into stocks” but piled even more into cash and bonds. BofA remains bearish and cites "the pain trade.”

By Samuel Indyk

Investors poured money into cash and bonds last week, according to data from BofA Global Research, ahead of this week’s pivotal central bank meetings from the Federal Reserve, European Central Bank and the Bank of Japan.

Cash funds saw $70.6 billion of inflows, BofA said, citing EPFR data, on Friday.

Inflows to cash so far this year have reached $837 billion, almost as much as the record $917 billion in the whole of 2020.

Bond funds saw $13.4 billion of inflows, while equity funds saw their second week of inflows ($7.7 billion), the strongest two weeks since January as investors were “dragged back into stocks,” BofA said.

“Q1 recession fears melt into Q2 Goldilocks greed,” BofA analysts said in the note.

“We remain bearish,” BofA said, adding that the “pain trade” over the next 12 months is the Fed raising rates to 6%, not lowering to 3%.

The S&P 500 closed 20% above its October 2022 low on Thursday, while the tech-heavy Nasdaq 100 is up over 32% year-to-date.

Tech funds, however, had their first weekly outflow ($1.2 billion) in eight weeks, after a record $8.5 billion inflow the week before, due to a surge of investor interest in stocks with exposure to artificial intelligence.

BofA’s bull and bear indicator, a measure of investor sentiment, rose to 3.6 from 3.5 on improving credit technicals and steady emerging market stock inflows.

A separate set of data showed global equity funds posted outflows for the eighth consecutive week in the week to June 7, while global bonds funds saw inflows for the 12th straight week.

Data from Refinitiv Lipper showed investors withdrew a net $18.84 billion from global equity funds, the largest weekly net selling since March 15.

This article was provided by Reuters.

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