U.S. large cap stocks see biggest weekly outflow in 16 months, says BofA report

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LONDON (Reuters) – U.S. large cap stocks suffered their largest weekly outflow since December 2022 in the week to Wednesday, Bank of America said, with traders nervous that sticky inflation will push rate cuts further out and geopolitical tensions adding to caution.

U.S. large caps saw $15.8 billion of outflows in the week, while stocks in general saw outflows of $19.6 billion, Bank of America said in its weekly round up of flows in and out of world markets using EPFR data.

The week to Wednesday covered last Thursday’s tumble on Wall Street on hawkish remarks from Federal Reserve officials and oil nudging above $90 a barrel, and this Wednesday’s stocks selloff on stronger-than-expected U.S. inflation data. [.N]

After that data, markets pushed back expectations for a Federal Reserve rate cut to September from June – though pricing is volatile – which has ramifications for other central banks, including those in Europe.

Japanese stocks saw their first weekly outflow in over three months, though even after these outflows, major equity markets in the United States, Japan and Europe remain at or close to record highs.

On the broader outlook, the BofA report described how the “Anything But Bonds” mood has driven demand for inflation hedges such as gold – currently also around record highs – and ‘monopolistic cash flows’ supporting flows to large U.S. tech stocks.

According to BofA calculations, the 10-year annualized return of U.S. Treasuries is at 65 year lows, as this decade marks the end of a “40-year bond bull”.

“2020s era of war, protectionism, fiscal excess, scarce energy, housing (and) labour (equals) higher inflation and higher cost of capital until recession sparks “buy bond humiliation,” the BoFA note said.

U.S. 2-year Treasury yields, sensitive to interest rate expectations, are near five-month highs and have climbed almost 70 basis points this year. Ten-year Treasury yields are up around 79 bps so far this year.