Money Market Funds Experience Record Outflows – Bank of America Reports
Record Outflows in Money Market Funds
The week ending October 11 witnessed the largest outflows in money market funds, with a staggering $108.9 billion being withdrawn, according to Bank of America strategists.
Stocks and Gold See Decrease
Surprisingly, the massive outflow from money market funds did not translate into a boost for stocks. Equities recorded their second consecutive week of outflows, losing $5.2 billion, while gold saw a decrease of $1.1 billion. In contrast, bonds attracted inflows of $2.1 billion during the same period.
Yield Surge and Oil Prices Could Impact Rally
Strategists note that a surge in yields above 5% or oil prices exceeding $100 per barrel could potentially impact the chances of a rally in oversold assets.
Treasuries Continue to Attract Inflows
When it comes to fund flows, Treasuries marked their 36th consecutive week of inflows, making it the longest streak since August 2010. On the other hand, financials experienced their 12th consecutive week of outflows, and the healthcare sector saw its eighth straight week of outflows, the longest streak since April.
Regional Breakdown of Equities
In terms of equities, the United States had inflows of $300 million, while emerging markets saw their second consecutive week of outflows at $600 million. Japan recorded outflows of $900 million, and Europe marked its 32nd consecutive week of outflows, with $1.9 billion leaving the region.
Bank of America Bull & Bear Indicator
Currently, the Bank of America Bull & Bear Indicator stands at an “extreme bearish” level of 1.9, which is seen as a contrarian buy signal for risk assets.
Potential Returns for Stocks and Bonds
Historically, following such buy signals, the indicator suggests that median 3-month returns could 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. Additionally, there is an average increase of 6.4% for high-yield bonds compared to Treasuries.
With money market funds experiencing record outflows, it is interesting to see the impact on other asset classes. While stocks and gold saw a decrease, bonds attracted inflows. The future potential for a rally in oversold assets could be influenced by rising yields or oil prices. Despite the outflows in financials and healthcare sectors, Treasuries continue to attract inflows. On a regional level, the United States saw inflows while emerging markets, Japan, and Europe experienced outflows. The Bank of America Bull & Bear Indicator suggests a contrarian buy signal for risk assets. Historically, following this signal, there have been positive returns for stocks and bonds. The financial landscape continues to evolve, and it will be interesting to see how these trends develop in the coming weeks.
