Bank of America Strategists Predict Payrolls Data to Resolve Autumn Ambiguity, Stock Funds See Significant Withdrawals
In a recent note from Bank of America, investment strategists have predicted that the upcoming labor market data will "resolve autumn ambiguity," providing clarity for investors. The strategists anticipate that payrolls data, with an estimated variance of +/- 100k, will play a crucial role in determining market direction. Until then, they suggest that risks will rotate rather than experience extreme movements.
Recent data from EPFR Global reveals significant shifts in investor behavior. U.S. stock funds experienced the largest outflows since April, with $6.1 billion exiting the asset class. At the same time, there has been a notable move towards cash, as money market funds saw $30.2 billion in inflows. Bond funds received $16.7 billion, and gold attracted $500 million for the week ending on September 11.
Investors have been diversifying their portfolios, with $1.6 billion leaving equity funds and $200 million flowing out of cryptocurrencies. Money market funds have now reached a record high of $6.3 trillion in assets. Japanese stocks faced a substantial outflow of $1.4 billion, while U.S. growth stocks experienced their largest outflow since June at $5.6 billion.
Bank of America's strategists recommend gold as a hedge against potential inflation reacceleration in 2025, advising clients to buy on dips. They also suggest considering commodities like oil and industrial metals as contrarian plays, given their pricing for a hard landing scenario compared to the SOFR market.
The recommendation for investors is to sell stocks at the first rate cut, citing downside risks to payroll and earnings per share forecasts. Bonds are expected to perform well, with yields projected to reach 3% as the market underestimates hard landing risks. Gold is also forecasted to rise to $3,000 per ounce due to increasing U.S. debt and deficits.
In terms of regional activity, Europe saw outflows totaling $1 billion, while emerging market stocks received $2.2 billion in inflows for the 15th consecutive week. Overall, the market outlook suggests a cautious approach towards stocks and a positive sentiment towards gold, bonds, and certain commodities.
In conclusion, investors should pay close attention to upcoming labor market data and consider diversifying their portfolios to mitigate risks and capitalize on potential opportunities in the current market environment. It is essential to stay informed and adapt investment strategies accordingly to navigate the evolving financial landscape successfully.