During the week ending October 11, money market funds witnessed their largest outflows on record, with $108.9 billion being withdrawn, according to Bank of America strategists.
However, this massive outflow from money market funds did not translate into a boost for stocks. Equities recorded their second consecutive week of outflows, losing $5.2B, while gold saw a decrease of $1.1B. In contrast, bonds attracted inflows of $2.1B during the same period.
Strategists note that a surge in yields above 5% or oil prices exceeding $100 per barrel could impact the potential for a rally in oversold assets.
In terms of fund flows, Treasuries recorded their 36th consecutive week of inflows, marking the longest streak since August 2010. On the other hand, financials experienced their 12th consecutive week of outflows, and health care saw its eighth straight week of outflows, the longest streak since April.
In a regional breakdown of equities, the United States had inflows of $300 million, while emerging markets saw their second consecutive week of outflows at $600M. Japan recorded outflows of $900M, and Europe marked its 32nd consecutive week of outflows, with $1.9B leaving the region.
The Bank of America Bull & Bear Indicator is currently at an "extreme bearish" level of 1.9, which is seen as a contrarian buy signal for risk assets.
The indicator historically suggests that following such buy signals, median 3-month returns imply a potential rise of 5.4% for US stocks, 7.6% for global stocks, and 9.1% for stocks compared to investment-grade bonds, with an average increase of 6.4% for high-yield bonds compared to Treasuries.