Investors have been pulling cash from US stocks. Bank of America, citing EPFR Global, tallied $14.2 billion of outflows from US equity funds over the last three weeks, the biggest such move since January. During the same window, money coming into global equity funds cooled to roughly $7 billion a week compared with $52 billion a week back in July. The S&P 500 notched an all time high about a month ago and has mostly moved sideways since, with volatility edging higher but still relatively contained.
The team highlighted a peculiar mix: the 30 year Treasury yield sitting at its highest level since June 2007, oil prices above $100 per barrel, and record diesel prices, all while the Federal Reserve continues to debate a data driven rate increase. Strategists Jared Woodard and Michael Hartnett, among others, wrote, "Markets stop panicking when policymakers start panicking, but no panic anywhere despite the highest 30-year yield since June 2007 and spiking commodities." They added that "Blasé markets" and "bravado policy" are "a recipe for volatility."
BofA points to a few pressure points pushing some investors to the sidelines: uncertainty around monetary policy, the US midterm elections, the unresolved war in Iran, and concerns about the pace of corporate spending on artificial intelligence. Despite an estimated $1.5 trillion poured into AI over the last three years, they see little proof of broad productivity gains so far. Their note says total factor productivity is now running below its trend, a gauge that has tracked closely with consumer confidence for about half a century. A Bloomberg chart in the workup underscored that record diesel prices are a threat to consumers and the S&P 500. As they put it, "Sometimes Main Street knows what Wall Street doesn't."
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The takeaway: money is drifting out of US stocks, yields are climbing, and big picture uncertainties are piling up just as the market's been calm. If that calm breaks, it likely will not be because investors were too nervous, but because they were not nervous enough.
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