With indexes reaching new highs this week, bulls are brimming with confidence as plenty of new money flows into the market. In 2023, both stocks and bonds experienced an unexpected rally, and it seems that momentum has carried over into the new year. Bank of America Global Research’s latest weekly fund flow data reveals that $17.6 billion has poured into stocks and $14.2 billion into bonds.
Investment grade bond funds have seen inflows for the 13th consecutive week, totaling $8.3 billion—an impressive feat. This marks their largest four-week inflow since February 2021. Additionally, even gold has experienced an inflow for the first time in six weeks, with a $400 million increase.
Unsurprisingly, tech funds continue to be a favorite among investors, with three consecutive weeks of inflows amounting to $2.8 billion. This marks the largest influx of new cash since August. BofA Investment Strategist Michael Hartnett explains that investors are confident in putting their money into domestic stocks, particularly in the tech sector. Despite the significant gains in 2023, U.S. data presents a relatively “Goldilocks” scenario, providing a favorable environment for investment. The economy remains strong, and the decrease in yields on Treasuries—typically a hurdle for stocks—has eased concerns.
Although tech’s rapid surge is seen as an artificial intelligence baby bubble, experts believe it is unlikely to burst in the near term. The current regulatory landscape is not overly concerning, and real interest rates would need to substantially increase before posing a real threat.
Bullish Trend Continues: Inflows in Stocks and Bonds
The market is witnessing a surge of confidence as the benchmark indexes hit new highs this week. According to the latest data from Bank of America Global Research, there has been a significant influx of new money into both stocks and bonds.
In the most recent week, a staggering $17.6 billion has flowed into stocks, while $14.2 billion has been allocated to bonds. The enthusiasm for investment grade bond funds remains strong, with inflows for the 13th week in a row totaling $8.3 billion—an impressive accomplishment. This also marks the largest four-week inflow since February 2021. Even gold, after a six-week dry spell, has seen its first inflow amounting to $400 million.
Tech funds continue to dominate as a preferred investment option, with a remarkable three straight weeks of inflows totaling $2.8 billion. This surge in capital marks the largest influx of new cash since August. The confidence exhibited by investors stems from their belief in domestic stocks, especially within the tech sector. Despite a phenomenal performance in 2023, U.S. data portrays a favorable landscape for investment, often referred to as a “Goldilocks” scenario. The economy remains robust, and the yields on Treasuries—which typically pose challenges for stocks—have eased from their previous highs.
While tech’s rapid growth sparks concerns of an artificial intelligence baby bubble, experts predict that its bursting is unlikely in the near future. The prevailing regulatory environment does not present substantial obstacles, and significant increases in real interest rates—adjusted for inflation—are required to pose a genuine threat.
Weekly Inflows Signal Investor Confidence in US and Emerging Markets
Investors worldwide are feeling optimistic about their investments, with the US and emerging markets seeing significant inflows of cash. According to Bank of America (BofA), emerging market equities experienced their largest weekly inflows ever, totaling $12.1 billion. The majority of these inflows came from China, with an impressive $11.9 billion. This surge marks the largest influx of new cash since July 2015 and the second-highest inflow on record.
It is worth noting that this recent influx of money follows a challenging period for China. The country’s central bank surprised markets by cutting bank reserve ratios after foreign investors fled and stocks hit multiyear lows. In addition, China’s real estate sector is grappling with a liquidity crunch and deflation of property stocks. Despite these challenges, BofA’s Michael Hartnett views China as a lucrative investment opportunity, stating that it is the world’s most attractive contrarian long-term trade. This sentiment is not widely shared, as many investors remain wary of the risks involved.
While investors keep a close eye on the central banks of China and the US, there are indications that monetary policy may soon become less restrictive globally. However, Hartnett believes that the US is unlikely to return to the ultralow interest rates of the previous decade in the near future. Nonetheless, investors are employing a strategy reminiscent of the 2010s, favoring companies with monopolistic power to set prices, protect margins, and dominate their markets.
Despite the overall positivity in the market, there are exceptions to this everything rally. BofA data reveals that emerging market debt funds experienced their third consecutive week of outflows, losing $900 million in total. Additionally, a significant amount of investors are opting to keep their money in cash, with $7.4 billion parked in this asset class during the most recent period.
Overall, it is evident that most investors are not succumbing to the traditional January blues and are expressing confidence in the US and emerging markets.
