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Investors quickly pulled billions of dollars out of equity funds in the days after the Federal Reserve raised interest rates in mid-December and raised fears of a recession.
Stock funds posted the biggest weekly outflow of $41.9 billion in the week to December 21, of which $27.8 billion came from exchange-traded funds and $14.1 billion from mutual funds, BofA Global Research analysts said, citing EPFR Global data. Weekly note.
BofA analysts, led by chief investment strategist Michael Hartnett, described the sale as “tax loss harvesting,” a strategy that involves deliberately selling an investment at a loss to offset taxes on investment gains.
Meanwhile, passive equity funds saw a total of $27.8 billion in outflows for the week through Wednesday, while US value funds posted weekly inflows of $17.2 billion (see chart below). Both were the biggest sellers on record.
Source: BofA Global Investment Strategy, Bloomberg
BofA’s Bull & Bear indicator fell to 3.0 from 3.1 last week, due to the first bond fund exit in three weeks. Bond funds recorded net outflows of $10 billion.
For the year, however, BofA’s equity funds saw revenues total $166.5 billion. In contrast, bond funds recorded outflows of $257.1 billion.
U.S. stock indexes have fallen since Wednesday last week after the Federal Reserve slowly raised interest rates to 4.25% from 4.50%, but reviewed a higher-than-expected terminal rate in 2023.
Shortly after the decision, central banks in Europe followed the Federal Reserve by reducing interest rates. Both the European Central Bank and the Bank of England raised their key lending rates by 50 basis points and policymakers at the ECB stressed that market participants should prepare for a series of rate hikes to come.
look up Here’s how U.S. investors can brace themselves for a sea change from Japan, according to Bank of America and Ct
Earlier this week, the Bank of Japan (BoJ) surprised markets with an unexpected change in its controversial yield curve control policy. The BoJ, a leader among major central banks in keeping rates within the zero lower bound, doubled the ceiling on the country’s 10-year bond yield TMBMKJP-10Y.
From 0.25% to 0.5%, it has destroyed equity in the region and triggered major changes in the US stock market.
BofA strategists say they are bullish on commodities over credit and favor “rest of the world” stocks over U.S. stocks, preferring small caps over large caps.
Sector-wise, they prefer industrials and banks over growth stocks, and technology and private equity.
MarketWatch Live: Before Christmas, stocks are at a high level of trading
S&P 500 SPX,
It is on pace to post a weekly loss of 0.4% after falling 2.1% last week. The Dow Jones Industrial Average DJIA;
It has gained a modest 0.7% so far this week, but the Nasdaq Composite COMP;
It fell 2.2%, according to Dow Jones market data.
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