Global equities suffer bailouts on recession fears, says BofA

Global equity funds had net redemptions of $4.6 billion, according to a Bank of America note. But in the US, they had a second week of additions

Global investors pile up cash and buy US Treasuries as they dump equities amid fears that the US economy is heading for a recession.

Global equity funds had net redemptions of $4.6 billion, according to a Bank of America note. But in the US, they had a second week of additions. Positive inflow to bond funds was $2.4 billion, the biggest inflow in 14 weeks thanks to purchases of Treasuries and sovereign debt, Bank of America said.

“The truth is, the second half is likely to be one of slowing growth and rising rates,” the bank’s strategists led by Michael Hartnett said in a note, adding that the risk of a credit shock was high.

US stocks rehearsed a rally this week after their worst first half since 1970, on optimism that inflation may have peaked. But strategists at Bank of America and Morgan Stanley warn that the slowdown in global economic growth could be worse than expected and add pressure to the S&P 500 in the second half of the year.

Rate hike concerns are also back after two of the Federal Reserve’s most hawkish policymakers argued for another 0.75 percentage point hike this month.

Hartnett said the S&P 500 is likely to be limited to between 3,800 and 4,200 this summer, which ends in September in the northern hemisphere, rather than a continued recovery.

“Bear markets end with a recession or an event that causes the Fed to reverse policy,” the strategist wrote, adding that rock bottom has not yet been reached.

Large-cap US stocks and growth stocks attracted inflows, while value-equity funds and smaller companies saw bailouts. Health and utilities led flows between sectors, while raw materials and energy had the biggest outflows after the decline in commodity prices.

Source: Bloomberg