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'Stagflation' trades boom as investors flee U.S. debt

EconomySep 03, 2021 09:39AM ET
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2/2 © Reuters. 3D-printed Microsoft logos are seen in front of a stock graph in this picture illustration taken July 22, 2021. REUTERS/Dado Ruvic/Illustration 2/2

By Saikat Chatterjee

LONDON (Reuters) -Investors have swept into assets perceived to perform on slowing growth and rising inflation, a weekly round-up by BofA showed on Friday, with tech stocks seeing their biggest inflows in six months and large outflows from U.S. government debt.

At $2.5 billion, tech stocks saw the biggest inflows since March 2021, while outflows from U.S. Treasuries rose to $1.3 billion for the week - their highest since February 2021 - as "stagflation" trades gathered momentum.

Emerging market equities enjoyed inflows of $4.4 billion, the data from BofA also showed. Private clients of the U.S. investment bank, holding $3.2 trillion in assets, increased their allocation to stocks to a fresh record high of 65.2% but cut bonds to an all-time low of 17.7%.

Stagflation is characterised by weak growth and persistently high inflation. It is usually seen as a particularly vicious period in the economic cycle, when very few asset classes perform well.

The investment bank's bull and bear indicator held well below a February high as lower bond yields and less exuberant global equity inflows weighed on sentiment.

"Our view is long quality (major stocks) as that is the best market and macro hedge in backdrop of stagflation and waning fiscal and monetary policy stimulus," analysts led by Michael Hartnett, chief investment strategist at the bank said in a note.

While global markets have recorded a string of highs over the summer period, market sentiment has become increasingly cautious due to rising inflation. Tuesday's data showed euro zone inflation increased to 3% year-on-year in August, the highest in a decade.

In notable milestones, BofA said the U.S. stock market recorded a string of 53 closing highs in 2021, the fifth most in the past 100 years. The previous four episodes were followed by heavy market declines.

 

'Stagflation' trades boom as investors flee U.S. debt
 

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Comments (7)
Kaveh Sun
Kaveh Sun Sep 03, 2021 10:36AM ET
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Uh oh, if they dont buy treasuries, Biden will have to raise tax on all of us to pay for his green agenda.
Klaus Weyers
Klaus Weyers Sep 03, 2021 9:55AM ET
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decline starting today.. added to my shorts
Connecticut Yankee
A_Jaundiced_Eye Sep 03, 2021 9:53AM ET
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Real estate & G-O-L-D.
Pratt Man
Pratt Man Sep 03, 2021 9:48AM ET
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God, I've heard all this stuff so many times over the last 35 years. The market is a long continuum, yet we think that every moment in time is so important and the end of something or the beginning of something. Everyone needs to decide if you're in or out... and get back to you life.
Jouni Matero
Jouni Sep 03, 2021 9:46AM ET
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US stock market, the biggest ponzi scheme of all time, finally waking up to reality..
Vincenzo Tilotta
Vincenzo Tilotta Sep 03, 2021 5:29AM ET
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Market is starting to finally wake up, bonds are trash, cash is trash, only tech and crypto are solid now
Richard Moore
Richard Moore Sep 03, 2021 5:29AM ET
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I dont know maybe its me but what is crypto without cash. Again maybe its me!
Lars Hellman
LarsH Sep 03, 2021 4:49AM ET
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Good for crypto
 
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