Investor enthusiasm for stocks shows no signs of abating.
Flows to equity funds hit a record high in the past three months – reaching $ 255 billion in the 12-week period, according to a Bank of America report citing EPFR Global data. Total flows to equity funds reached $ 21.6 billion in the week of Jan. 20, analysts said.
Investor sentiment remains optimistic despite markets hitting historic highs. BofA cites the central bank’s unprecedented “extreme” stimulus in the wake of Covid-19 as the main driver of the rallies. Joe Biden’s “Blue Wave” election and a Democratic Senate majority combined with low yields also help support markets, said Goldman Sachs, who noted in a Jan. 21 report that “cyclical assets may rise even so should yields, given the absolute level of yields still low and a macroeconomic growth context still favorable. “
“With the Senate under Democratic control, we are now planning $ 1.1 trillion in additional short-term fiscal stimulus,” Goldman said. “This bolstered our already optimistic growth forecast in the US to 6.6% for 2021 and 4.3% through 2022.”
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Emerging market funds were in demand, with weekly emerging debt funds attracting $ 4.3 billion and EM equity funds attracting $ 4.1 billion, Bank of America said. The bank’s “base case” for 2021 is based on the investment trends of “bigger government, smaller world, depreciation of the US dollar, currency wars, monetary excess over the budget, submissive central banks, peak inequalities ”.
So-called “buy-the-dip” strategies should be limited to inflationary assets, such as small caps, value stocks, emerging markets, commodities and gold, they added.
The US bank warns that Washington’s “political bubble” “is fueling the Wall Street asset price bubble” and that inflation on Wall Street will likely lead to inflation on Main Street, with the risk of a “disorderly rise in prices. bond yields ”, which could trigger volatility events.
In the week ending January 20, Bank of America also found that bond funds had inflows of $ 17.4 billion, conversely, treasury funds had outflows of 13.5 billion. billions of dollars.
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In 2020, hedge fund capital hit a record $ 3.6 trillion, representing a quarterly gain of $ 290 billion, which was “the biggest asset growth in history,” reported the data provider of the HFR sector.
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