Bank of America reported a record $19 billion withdrawal from the stock market in the past week, marking the highest outflow seen this year. This development comes amid rising bond yields and concerns over prolonged high-interest rates. The stock market experienced an outflow of $18.96 billion over the last week, the most significant weekly withdrawal since December 2022.
The Federal Reserve's recent policy meeting played a crucial role in these developments. Jerome Powell, the chief central banker, suggested that interest rates might remain high for longer than what the markets anticipated. Following his comments, bond yields surged, with the 10-year Treasury yield reaching 4.49%, a level not seen since 2007. Concurrently, the two-year Treasury yield climbed to its highest point since 2006.
Analysts have warned that this 'higher for longer' scenario could pose significant challenges for stocks and potentially lead to a difficult market environment in 2024 if rates persist at these levels. Bank of America strategist Michael Hartnett noted that while the first half of 2023 brought relief with no recession, the latter half has brought concerns over prolonged high-interest rates and tighter financial conditions.
Hartnett cautioned that these elevated rates increase the likelihood of a hard landing and risk a market "pop and bust" scenario in the first half of the year. Despite moving away from predicting a recession this year, Hartnett observed signs indicating a potential hard landing in 2024.
Key indicators include a steepening of the 2-10 Treasury yield curve by another 110 basis-points over the past week, suggesting a possible recession signal from the bond market. Other indicators include a slight increase in unemployment to 3.8% and a rise in the personal savings rate to between 4% and 5%, according to Bank of America data.
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