2018 was a bad year for stocks... and most other assets: as Deutsche Bank showed, a record 93% of assets posted a negative total return in the past year.
Yet while bonds dropped 1.2%, equities lost 8.7%, and commodities were down 13.1%, it wasn't a bad year for cash, in fact, with a 1.8% return, this was the first year since 2000 that cash outperformed both bonds and stocks.
This abysmal cross-asset returns weren't lost on investors, and 2018 was the year when, according to BofA's Michael Hartnett, we saw "Big flow capitulation" consisting of record outflows in past 6 weeks in equities ($84bn) & IG bonds ($34bn) offset by record government bond inflows ($24bn) over the same 6 week period.
Capitulations was also observed more recently, with $1.8bn flowing into gold, $12.7bn out of bonds, and $30.2bn out of stocks in the past 2 weeks; meanwhile a "great rotation" in credit saw $13bn go into US Treasuries vs. $9bn IG bonds outflows, $6bn
out of HY bonds, $5bn out of bank loans; $20.1bn out of US equities, $4.5bn out of Europe equities, $3bn out of tech (10% unwind of 2017-2018 inflows), and $2bn out of fins.
And as as a vicious feedback loop emerged, where dropping risk prices fed into outflows, in turn resulting in even lower prices, the outcome was one that BofA's Chief Investment Strategist has dubbed "Apocalypse Dow", which since the "Big Top" of Jan 18 has manifested in a global equity market cap loss of a massive $19.9 trillion peak-to-trough, on par with the US GDP of $20.6tn, while 2055 of 2767 US & global companies in bear market with the financial sector hit among the hardest, and as a result global banks prices are trading back at 2008 relative lows.
Hartnett's summary is laconic: "the horror, the horror" especially since he thinks that there is one key capitulation that has yet to take place: that of the sell-side, as Bloomberg consensus forecasting 10-year Treasury @ 3¼%, S&P500 @ 2975 by end-2019.
So what does he think happens next? Hartnett is convinced that we have not seen the "Big Low of ‘19" yet... but building blocks falling into place, and just need Profit expectations to trough....
... and Policy panic, which will happen once the Fed cuts to prevent credit events.