- Extreme times call for extreme moves, Bank of America said Friday as it detailed inflows of mutual funds into and out of key market sectors.
- Bank of America said U.S. stocks had their third largest outflow, and investors pulled $ 25.8 billion from stocks last week.
- Technology stocks, which have pushed the market down since hitting record highs on September 2, saw their largest repayment since June 201
- September’s stock market correction is part of a “straightening process,” but don’t expect a big bearish move as the Federal Reserve continues to implement simple monetary policies, the company said.
- You can find more stories on the Business Insider homepage.
Investors, angry about rising COVID-19 cases and the lack of additional fiscal stimulus from Congress, pulled funds out of U.S. stocks at the third fastest pace ever last week, Bank of America said in a Friday note .
Investors pulled $ 25.8 billion from U.S. stocks, with a large portion, $ 11.6 billion, of which came from large-cap stocks, Bank of America said.
Technology stocks that have led the market down since their record high on September 2 have seen outflows of $ 1 billion, the fastest rate since June 2019, the company said.
Fund flow activity is part of a September “topping” process, but that doesn’t mean investors should expect a big bear move in stocks, partly because the Federal Reserve’s monetary policy remains simple, partly because there is no irrational exuberance Wall Street, said Bank of America.
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Bank of America’s Bull & Bear Indicator fell from 3.9 to 3.8 in the past few weeks, well below the “greed” that is often associated with a top-heavy market.
Instead, according to Bank of America, the stock market correction is “more healthy than dangerous”.
Foam areas like Tech and the SPAC area are being wound down, which could result in the market experiencing “heavy” trading through October and through to the end of the year.
What it takes to judge whether the stock market is due for a nasty sell-off is the credit markets. As long as spreads don’t widen significantly and the LQD publicly traded corporate bond fund holds prices between $ 130 and $ 132, Wall Street is “not a bear story,” Bank of America said in the fourth quarter.
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The LQD ETF was trading 3% above the $ 130 level on Friday, which is also in line with its 200-day moving average. Traders will seek support at this level when the market is in fact showing prolonged signs of weakness.
In the meantime, investors shouldn’t expect a record high after this correction without an additional round of monetary and fiscal stimulus from the Fed and Congress, Bank of America said.
“With the greatest fiscal stimulus behind us and no explicit MMT, it is difficult for policy makers to catalyze a major uptrend for stocks and loans in the next 6 months given initial valuations,” the press release said.
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