LONDON (Reuters) - Investors once again stormed into stocks last week with inflows in the last three months soaring to a record $255 billion, BofA's weekly flow data showed on Friday, prompting investors to warn about a looming correction.
With the U.S. Federal Reserve's balance sheet hitting 42% and U.S. budget deficit bulging to 33% of gross domestic product, BofA said policy bubble was fuelling Wall Street's asset price bubble.
World stocks have soared 77% from March lows, led by the United States due to unprecedented economic stimulus.
Equities attracted $21.6 billion in the week to Wednesday, mainly driven by emerging markets. In business sectors, financials and energy gained the most as the reflation trade gathered pace on expectations of further fiscal support from the new U.S. administration under Joe Biden.
"Extreme policy remains best explanation for extreme rally off lows in 2020, consensus macro boom in 2021," said Michael Hartnett, BofA's chief investment strategist.
"We expect peak positioning & correction in Q1."
Hartnett's view mirrors similar warnings from some Wall Street banks this week.
"The market is rising on good news but choosing to largely ignore weaker data and rising infection rates," Goldman Sachs (NYSE:GS)' investment team wrote in a note on Tuesday.
"Rapid fund flows and highly correlated risk assets make a correction in the near term increasingly likely."
(Graphic: World stocks market cap versus GDP: https://fingfx.thomsonreuters.com/gfx/buzz/yxmvjyjodpr/Pasted%20image%201611303826945.png)