By Thyagaraju Adinarayan
LONDON (Reuters) – Investors poured billions of dollars into high-flying stocks even as the ongoing bond market rout led to sharp losses on Wall Street and kicked off a “new era of volatility”, BofA said on Friday.
Hovering close to 1.6%, have risen close to 45 basis points in the last one month, triggering a selloff in equities, which have lost $4 trillion in market value since the mid-February peak.
The investment bank, analysing flows on the back of EPFR data, said equity funds saw $22.2 billion inflows, driven by $2.3 billion into tech and $2 billion into financials in the week to Wednesday.
The bond market slump is yet prompt a major change in positioning among investors, with a record 62.6% of BofA’s clients invested in stocks.
A $29 trillion monetary and fiscal stimulus has led to “addictive” Wall Street-Fed dependency culture, Michael Hartnett, the bank’s chief investment strategist said in the note to clients. Markets will now likely push the Fed via higher yields into a yield curve control (YCC) policy announcement, he added.
U.S. Federal Reserve Chair Jerome Powell’s messaging on Thursday disappointed Wall Street as investors had built expectations that he would act on the wild yield spike in U.S. 10-year Treasuries.
The Fed’s policy-making committee convenes next on March 16-17.
World stocks have added close to $40 trillion from the bottom of coronavirus selloff last year. Stocks have added about $6 billion per hour, since last March, almost 10 times faster than the pace seen in the immediate aftermath of the 2008 global financial crisis, according to BofA.
“We think the Fed will inevitably move to YCC,” Hartnett said, adding that the U.S. dollar could rise before that, but any announcement of a switch to YCC would likely trigger the start of a great bear market in greenback.
The hit November highs on Friday. Still, investors were largely bearish with net $30 billion dollar short positions, a bit less than the $35 billion in January end — which was the most since 2011.
(Graphic: Short USD bets and USD: https://fingfx.thomsonreuters.com/gfx/mkt/yxmpjxanlpr/Short%20USD%20bets%20and%20USD.JPG)
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