By Isabel Wang
Investors dumped stocks in a big way last week.
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 in order to offset those losses against 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.
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.
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Earlier this week, the Bank of Japan (BoJ) surprised markets with an unexpected change in its controversial yield curve control policy. The BoJ, the first among major central banks to remain at the zero lower bound, doubled the nation’s 10-year bond yield from 0.25% to 0.5%, roiling stocks across the region and triggering a big swing in U.S. stocks. Market.
BofA strategists say they are bullish on commodities over credit and prefer “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.
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US stocks ended the week mostly lower on Friday. The Dow Jones Industrial Average posted a weekly gain of 0.9%, while the Nasdaq Composite was up nearly 2% and the S&P 500 was down 0.2% for the week, according to Dow Jones Market Data.
– Isabel Wang
(END) Dow Jones Newswires
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