Record cash inflows show many missed market rally

Bloomberg News


Investors poured $1.3 trillion into cash, dwarfing the $152 billion that flowed into stocks

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Investors poured record amounts into cash this year, according to Bank of America Corp. strategists, highlighting how a lot of market participants missed out on the best stock rally since 2019.

Cash funds attracted US$1.3-trillion of inflows, dwarfing the US$152 billion that flowed into global stocks, a BofA team led by Michael Hartnett said, citing EPFR Global data. Investors also staked more on United States Treasuries than ever before, at US$177 billion.

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The figures illustrate how this year’s equity rally took most investors by surprise after a dismal 2022. And it could mean there’s still a lot of money on the sidelines that’s waiting to be pushed into stocks and bonds in the new year, should expectations of central bank policy easing prove correct.

“There is significant dry power available for investors to come back to equities, should the rate cuts/soft landing scenario pan out,” Emmanuel Cau, a Barclays Plc strategist, wrote in a separate note.

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Unexpectedly resilient economies provided a platform for this year’s equity rally, which gained extra impetus in the fourth quarter as optimism about central bank easing took hold.

The U.S. stock market outperformed, thanks to steady growth in the face of aggressive Federal Reserve tightening, while excitement around artificial intelligence developments propelled heavyweight technology stocks even higher. U.S. large-cap funds pulled in US$125 billion this year while cheaper, so-called value stocks saw a record US$73 billion of redemptions, according to the BofA note.

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But after the rally showed signs of running too hot, some strategists are warning of a temporary pullback. The S&P 500 fell the most in three months on Wednesday, before rebounding on Thursday. The BofA note showed the heaviest outflows in a year from equity funds in the week through Wednesday, at US$21.3 billion.

Cau at Barclays said that some consolidation is healthy, but that the set-up is still positive for equities in 2024.

With assistance from Michael Msika

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