Rush to cash is at fastest pace since pandemic: BofA

The asset class had inflows of $62.1 billion in the week through November 2, according to a note from the bank citing EPFR Global data. That’s contributed to $194 billion of inflows into cash since the start of October – the fastest start to a quarter the pandemic roiled markets in the second quarter of 2020.

Bank of America’s strategists don’t expect the Fed to pivot anytime soon as inflation remains high and unemployment is low.

“Lesson is job losses catalyst for 2023 pivot,” strategists led by Michael Hartnett wrote in the November 4 note.

A recession and credit events will need to occur for the Fed to end tightening, prompting the start of a new bull market, Hartnett said. Traders will be closely watching jobs data due soon for signs of any slowing in the labor market, which could convince the central bank to soften its stance. Hartnett’s comments come after Fed Chair Jerome Powell indicated this week that he’s prepared to push interest rates as high as needed to stamp out inflation, even as the central bank eyes a downshift to a slower pace of increases. The Nasdaq 100 closed at the lowest level since July 2020 on Thursday, with the gauge on track for its worst week since January. The S&P 500 is set for its worst week since September.

Among other asset classes, global equity funds saw $6.3 billion of inflows in the week, while nearly $4 billion was pulled from bonds, according to the EPFR data.

Equities are likely to bottom in the spring of next year due to a “recession shock,” the strategists wrote. After inflation, rates and the dollar peak, investors should sell the greenback and buy 30-year Treasuries, high-yield bonds, emerging-market assets and small caps, they said. Bank of America’s custom bull-and-bear indicator remained at its “extreme bearish” level for a seventh consecutive week, the longest period since the global financial crisis in 2008-2009.