Investing.com -- Passive equity funds absorbed a record wave of inflows last week, while demand for U.S. Treasuries surged to its highest level ever, according to Bank of America.
In the week through April 9, global equity funds saw $48.9 billion in net inflows, driven by a $70.3 billion flood into passive vehicles, offsetting $21.3 billion in redemptions from active funds.
Treasuries posted a record $18.8 billion inflow. Bond funds overall saw $20.8 billion in outflows, led by high-yield (HY) bonds with their biggest-ever weekly redemption at $15.9 billion, and a $12 billion pull from investment-grade (IG) funds—the first IG outflow in 76 weeks.
Financial sector equities saw record weekly redemptions of $3.6 billion, while gold added $1.8 billion and crypto funds lost $500 million.
Bank of America strategists led by Michael Hartnett say the post-pandemic era of “U.S. exceptionalism” is giving way to “U.S. repudiation,” marked by what they call a “buyers’ strike of U.S. assets.”
"We ‘sell-the-rips,’ long 2-year Treasuries, short S&P” until the Federal Reserve cuts interest rates aggressively to break the liquidation cycle, the U.S.-China trade war cools, and real wages restore household purchasing power, the strategists added.
The bank sees 4800 on the S&P 500 as a tactical level to re-enter risk assets if policy measures help avert a deeper downturn.
“The old S&P 500 valuation ‘floor’ of 20x is now the new ‘ceiling,’” Hartnett said.
“We still think SPX at 4.8k is the right level to buy risk assets if policy panic makes recession short/shallow.”
Regionally, U.S. equity funds took in $31.3 billion during the week, while emerging markets (EMs) extended their inflow streak with $26.7 billion. Outflows resumed in Europe at $3.1 billion and Japan at $1.2 billion.
In fixed income, Treasury funds saw their fifth straight week of inflows, while EM debt funds lost $3.6 billion and bank loan funds shed $5.4 billion. TIPS saw their strongest weekly inflow since November 2021 at $1.6 billion.