LONDON – Cash equivalent funds saw a $160 billion tax-related outflow in the week to Wednesday, according to a Bank of America’s weekly report that cites fund flows and asset allocation from data provider EPFR, while U.S. stocks suffered their second week of outflows.
The $4.1 billion pulled from U.S. equities in the latest week meant that U.S. stocks suffered their largest two-week outflow since December 2022.
Tuesday was the U.S. Treasury’s annual tax filing deadline.
Investors remain concerned over lofty valuations as markets push back expectations for rate cuts from the Federal Reserve to later in the year.
MSCI’s broadest gauge of world stocks was down almost 4% in the last two weeks, on track for its biggest two-week drop since October.
BofA strategist Michael Hartnett said the correction in risk assets in the second quarter has occurred as markets shift to viewing the ongoing robust data from the U.S. as negative.
“‘Good news = good’ in Q1 flips to ‘good news = bad’,” Hartnett said.
“Bears say watch US growth stocks and HY (high yield) bonds to signal more sinister transition to ‘bad news = bad’.”
In the first quarter, investors saw good economic data as a positive for company earnings, and while it caused a paring back of expectations of Federal Reserve rate cuts, some monetary easing was still seen as near certain.
But, as economic data continues to be resilient, rate cuts are getting pushed back further and some policy makers have even said a further rate hike is not impossible.
BofA said its Bull and Bear indicator, a measure of market sentiment, dropped to 5.0 from 5.2 as outflows from stocks and high yield bonds outweighed a drop in cash levels from their fund manager survey.
