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.