Investors are taking cash out of US stock markets in swathes and putting it into money market (cash) funds, gold and bitcoin, according to Bank of America’s weekly analysis of trading flows.
Fear of a US recession is driving the movement, suggests BoA, with the latest manufacturing index (ISM) pointing towards that eventuality.
“USM ISM@46.3...manufacturing contraction on full display and prints below 45 always = recession in the past 70 years and set to be confirmed by rising employment in coming months.”
Underlying the point, BoA highlighted that cash has seen its biggest four-week inflow (US$403bn) since April 2020, gold is on its longest inflow streak (four weeks and US$2.7bn) for a year while high yield and long bonds also saw money flow in.
According to BoA, the strategy is to sell equities when the US Federal Reserve announces its next rate hike.
“Sell the last hike was the correct strategy for stocks in the inflationary 70s/80s”, it adds, noting that stocks fell in the three months after every rate hike in that period.
"Recessions are reliably negative for equities throughout history and are insufficiently discounted in advance."