Investors flee every major asset class in the past week

Investors flee every major asset class in the past week

Over the past week, investors fled every major asset class, with US equity and Treasuries being rare exceptions to the massive exodus, amid concerns that tighter monetary policy will push major economies into a recession.

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The Bank of America Corp. said equity funds had $5.2 billion outflows in the week to May 18, led by redemptions from mutual funds. Bond fund outflows reached $12.3 billion, with only Treasuries and government debt seeing additions. The investors exited gold and cash.

Since March, global stocks have lost almost $12 trillion in market value due to investors dumped risk assets amid a flurry of concerns spanning central banks and surging inflation. In BofA's monthly fund manager survey released earlier this week, investors turned their most underweight equities into the most underweight equities in two years because of the tail risks from inflation and the war in Ukraine.

The likes of Morgan Stanley and Bank of America say that the equity market rout has more to go, despite the fact that strategists from David J. Kostin at Goldman Sachs Group Inc. and Marko Kolanovic at JPMorgan Chase Co. have said that the imminent recession is overblown.

During BofA's custom Bull Bear indicator sluggishly fell to an unambiguous contrarian buy signal for stocks, strategists led by Michael Hartnett reiterated their recommendation to sell bear rallies. The S&P 500 tried to recover this week after flirting with bear market territory, but the bounce has proved short-lived and the benchmark is set for its longest weekly losing streak since 2001.

Hartnett said that the S&P 500 saw an average decline of 37.3% over the past 140 years, with an average duration of 289 days. BofA said the latest bear market would end in October, with the S&P 500 at 3,000 points -- about 23% less than current levels, and the Nasdaq at 10,000 points -- 16% lower from here.

In the note, Hartnett wrote that 3,600 is the new bull case, referring to the S&P 500 level, which would mean 7.7% downside from here.

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In the past week, US stocks saw $0.3 billion inflows, followed by additions to Japanese shares, while European stocks extended their outflows to a fourteenth week. The investors piled into US large-caps and growth stocks while exiting value and small-caps. Inflows from utilities and real estate were led by a number of sectors, while financials, materials and energy saw outflows.

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