In the past nine weeks, Bloomberg Global Equity funds saw their biggest outflows as investors piled into cash amid fears that the US economy could be headed for a recession.
In the week through June 22, US stocks saw their first outflow in seven weeks at $17.4 billion, according to Bank of America Corp., with EPFR Global data showing the exit of around $16.8 billion exited global stock funds. Bonds saw redemptions of $23.5 billion, while investors moved $10.8 billion to cash and $0.6 billion to gold, according to the data.
The custom bull and bear indicator from the Bank of America remains at maximum bearish, according to strategists led by Michael Hartnett, who wrote a note that is a buy signal for stocks. They said that capitulation has not been reached for equities, because investors have bought $195 billion of stocks and sold $193 billion of bonds for the year.
The US stock market has struggled to recover after it went into a bear market last week, and the S&P 500 Index is still on track for its worst first half since 1970, despite fears of economic slowdown. Federal Reserve Chair Jerome Powell acknowledged that a soft economic landing was very challenging this week. Equity markets haven't seen a bottom despite the selloff. Hartnett said last week that based on past bear markets, the index would drop by 20% from recent highs, the current one for the S&P 500 would end in October with the index at 3,000 points. The index dropped to 3,000 to reflect the scale of economic contraction, according to Morgan Stanley strategist Michael J. Wilson. A 1970 s style shock with higher inflation could cause the index to fall more than 30% from current levels, according to the Manish Kabra of Societete Generale SA.
The US small cap and large cap stocks led outflows by trading style. The biggest redemptions were made by the sector, materials and energy. Technology, communication services, and real estate had inflows.
The Age of Credibility for Central Banks is not over, and there is no way for that to happen.