BofA: "Monday Is When The Bears Capitulated", Now Stampeding Into Equities

Bank of America's Michael Hartnett (who has been bearish throughout the recent central-bank inspired rally, as have been most professional investors), looks at the latest EPFR fund flows data,and concludes that Monday is when the bears finally capitulated.

The flow summary:

  • Monday (7/11) saw the largest HY inflows on record ($2.1bn – Chart 1), the largest equity ETF inflows since Dec’15 ($6.4bn) and the largest bank loan inflows in almost 3 years ($0.4bn)…the day when bears capitulated into risk assets
  • Weekly flows: largest equity inflows in 9 months ($11bn), chunky $10bn bond inflows and inflows to precious metals in 25 of past 27 weeks ($0.8bn)…investors have shunned equity funds YTD ($123bn outflows) but are now stampeding into the asset class for fear of missing out
  • Equity flow highlights: largest inflows to US equity funds since Sep’15; largest inflows to EM equity funds since Mar’16; but notably, European equity funds recorded the largest redemptions on record ($5.8bn)…laggard not catching a bid
  • Bond flow highlights: 2nd largest inflows to EM debt funds on record; largest HY inflows since Mar’16; 19 straight weeks of IG inflows…credit mania
  • BofAML Bull & Bear Indicator triggered a contrarian “buy” signal for risk assets two weeks ago when sentiment fell to an “extreme bearish” reading of 1.6. Latest reading is 1.8 (Chart 2)…more tactical upside ahead.

And the details:

  • Equities: $10.8bn inflows (largest since Oct’15) (note divergence between $17bn ETF inflows & $6bn mutual fund outflows)
  • Bonds: $10.0bn inflows (inflows in 13 of past 15 weeks) Precious metals: $0.8bn inflows (inflows in 25 of past 27 weeks)

Fixed Income Flows

  • Largest daily HY bond inflows on record ($2.1bn) on Monday; $4.4bn inflows for the week (largest since Mar’16)
  • 2nd largest inflows on record to EM debt funds ($2.7bn)
  • 19 straight weeks of inflows to IG bond funds ($1.8bn)
  • 43 straight weeks of inflows to Munis ($0.8bn)
  • Inflows to TIPS in 20 of past 22 weeks ($0.1bn)
  • $0.7bn outflows from Govt/Treasury funds (largest in 6 weeks)

Equity Flows (Table 2)

  • Europe: record $5.8bn outflows (23 straight weeks of outflows)
  • UK: $0.9bn outflows (outflows in 11 of past 12 weeks)
  • US: $12.6bn inflows (largest since Sep’15)
  • EM: $1.6bn inflows (largest since Mar’16)
  • Japan: $0.6bn inflows (5 straight weeks)
  • By sector: largest outflows from utilities funds since Nov’15 ($0.4bn); largest inflows to REITs funds in 5 weeks ($0.6bn)