In the latest Flow Show report from BofA’s Michael Harnett, the Chief Investment Strategist notes that, as expected, there was a major flow capitulation during the last week following the worst rout in the market since February. To wit, there was a massive $15.8BN outflow from equities, coupled with $8.1BN out of bonds.
Broken down by category, there were big outflows from US stocks ($14.8BN), mutual equity funds ($15.5bn) and, of course, Europe where some $4.8Bn fled following the latest Italian turmoil. Credit was not spared either with a “huge” $6.2 billion in IG bond redemptions, one week after what was already record outflow from investment grade.
Meanwhile, the recent reversal in investment sentiment continues with $11Bn in outflows from financials over the past 7 months, after $32bn in inflows since 1/17; in just the past 4 weeks there have been $2Bn in tech redemptions after $42Bn in inflows since January.
Offsetting the flight from risk, BofA highlights an institutional “dash to cash” manifesting in the 3rd heaviest day of volume ever in Eurodollar futures (ED1), while Hartnett also notes that private clients have been aggressively turning to T-Bills with the allocation as % debt holdings at 10-year high of 2.8%.
What these flows demonstrate is that, despite the still resilient market, investors are heading for the exits in ever greater numbers. They may have a point: as Hartnett notes, there have been at least 4 distinct bearish anomalies in recent days:
To this list one can also add earnings, which are expected to post near record growth for the 3rd consecutive quarters, yet markets appear oblivious.
