From Tyler Durden: A curious dichotomy has emerged in global fund flows. According to the latest flow report from BofA’s Michael Hartnett, “it’s risk-on in Bonds, it’s inflation-on in Stocks, and EM is now playing role of cyclical catch-up trade.”
In short, in the last week the Trump Trade has emerged from the dormancy in which it had faded for the past month.
But when one looks at where the money is flowing, it is going everywhere except where one would expect, as US stocks continue to be shunned, based on EPFR data.
Here are the details.
Yet despite the latest weekly euphoria, BofA finds outflows from equity funds investing in US stocks, amounting to another $1.6 billion across ETFs and mutual funds, the 4th week of outflows in the past five. Among the sectors shunned are growth, telcos, consumer sector; i.e. redemption from “deflation assets”, inflows to “inflation assets.”
Still, despite this ongoing outflow from the US, the S&P continues to levitate to ever higher all time highs, making one wonder once again, if the latest record push is more a function of short covering (something we saw vividly earlier this week), and/or stock buybacks.
Some more granular details:
Asset Class Flows
Fixed Income Flows
By sector: $1.9bn inflows to US value funds vs $1.0bn outflows from US growth funds; 4 straight weeks of outflows from REITs ($0.4bn); inflows to materials in 13 of past 14 weeks ($2.4bn); inflows to energy in 9 of past 10 weeks ($0.4bn)
Hartnett then rhetorically asks again, as he did earlier in the week, if it is time to sell and answers:
“No. We remain bullish risk assets: Feb 10th marks one-year anniversary of lows in oil $26/bbl, SPX 1810, inflation expectations, and highs in VIX 30 and HY spreads 900bps; catalysts for furious 12-month rally = Positioning, Profits, Policy; our Positioning gauge up from 0 to 6.1, our Profit proxy up from 1.5 to 6., but neither at euphoric levels. And Policy (easy global money & Trump fiscal stimulus) remains risk-friendly H1.
Finally, as we head into this one last hurrah for stocks, here are BofA’s “Icarus trade targets”:
With every passing day, these targets look less and less ridiculous.
The SPDR S&P 500 ETF Trust (NYSE:SPY) was trading at $231.29 per share on Friday afternoon, up $0.69 (+0.30%). Year-to-date, SPY has gained 3.47%, versus a % rise in the benchmark S&P 500 index during the same period.
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