Global equity funds see their biggest outflows in 9 weeks

 

Bloomberg

Global equity funds saw their biggest outflows in nine weeks as investors piled into cash amid fears that the US economy could be headed for a recession.
About $16.8 billion exited global stock funds in the week through June 22, with US equities seeing their first outflow in seven weeks at $17.4 billion, Bank of America Corp (BofA) said, citing EPFR Global data. Bonds saw redemptions of $23.5 billion, while investors moved $10.8 billion to cash and $0.6 billion to gold, the data show.
Bank of America’s custom bull and bear indicator remains at “maximum bearish,” strategists led by Michael Hartnett wrote in a note, which is a buy signal for stocks.
For the year, investors have bought $195 billion of stocks and sold $193 billion of bonds, meaning capitulation has not been reached for equities, they said.
The US stock market has struggled to meaningfully recover after it sank into a bear market last week, and the S&P 500 Index is still on track for its worst first half since 1970 amid fears of economic slowdown. Federal Reserve Chair Jerome Powell acknowledged this week that a soft economic landing was “very challenging.”
Despite the selloff, strategists broadly believe equity markets haven’t seen a bottom. Hartnett said last week that based on past bear markets — defined as a 20% drop for the index from recent highs — the current one for the S&P 500 would end in October with the index at 3,000 points. That’s 21% below current levels.
Morgan Stanley strategist Michael J. Wilson also sees the index dropping to 3,000 to fully reflect the scale of economic contraction. And Societe Generale SA’s Manish Kabra said this week that a 1970’s style shock amid stagnation with higher inflation could send the index crashing more than 30% from current levels.
By trading style, US small cap and large cap stocks led outflows. By sector, materials and energy saw the biggest redemptions. Technology, communication services and real estate had inflows.
“In spite of the hawkish remarks from Fed officials, the growing worries that their hikes would trigger a recession actually meant that investors priced in a shallower pace of rate hikes over the coming 12-18 months,” Deutsche Bank AG strategists led by Jim Reid wrote in a note. “That had a knock-on impact on Treasuries.”
Sliding raw materials prices have contributed to a moderation in market-based measures of inflation expectations. Oil headed for its first back-to-back weekly loss since early April amid a broader selloff in commodities markets.
West Texas Intermediate crude traded near $105 a barrel after retreating over the previous two sessions. The US benchmark has lost almost 4% this week, putting prices on course for their first monthly drop since November.

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