BofA sees bearish rally die out even as stock inflows rise

BofA sees bearish rally die out even as stock inflows rise

Buzz Update BofA sees bearish rally die out even as stock inflows rise

(Bloomberg) – Investors flocked to stocks at the fastest pace in about eight months on signs of slowing inflation, but strategists at Bank of America Corp. warn that the rally will run out of steam due to earnings risks and staunchly hawkish central banks.

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Global equity funds saw inflows of $22.9 billion in the week through November 16, according to a bank note citing data from EPFR Global. A slower-than-expected US inflation report last week initially fueled bets that the Federal Reserve could signal a slowing pace of rate hikes.

But stock market moves have since been subdued as Fed officials indicated there was more scope for raising rates before seeing a significant slowdown in consumer prices. Bank of America strategists led by Michael Hartnett said they don’t expect a policy pivot until June or July and that expecting easing before then would be a “big mistake.”

Absent an earlier change in the Fed’s approach, “much of the bear market recovery is behind us,” they wrote in a Nov. 17 note.

Market volatility has subsided after the wild swings at the start of the year. The S&P 500 index has now gone five consecutive sessions without closing either higher or lower than 1% for the first time since January, and traders expect the swings to ease even further in the coming weeks.

Morgan Stanley’s Wilson sees tough run for stocks in 2023

The outlook is again bleaker for next year as market strategists including Morgan Stanley’s Michael Wilson warn of falling corporate earnings fueling more stock losses ahead of a rebound in the second half. The Bank of America team also said earnings will “ironically” remain under pressure even if inflation eases. They recommend holding bonds in the first half of 2023, with equities becoming more attractive in the last six months of the year.

Global bond funds saw inflows of $4.2 billion during the week, while $3.7 billion withdrew from cash, according to Bank of America data. In Europe, share buybacks reached a 40th consecutive week – the longest pace on record, according to the note.

By style, US large caps, small caps, value and growth all saw additions. Technology and healthcare led capital inflows, while communication services, utilities and real estate saw weak outflows.

–With help from Thyagaraju Adinarayan, Jessica Menton and Matt Turner.

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