Bank of America (BofA) strategists warned on Friday (29th) thatS&P 500 IndexThe tipping point is at 4000 points, once it falls below this level, it may trigger a large-scale capital outflow.
A team of Bank of America strategists led by Michael Hartnett, citing EPFR Global data, pointed out that in the past three weeks, outflows from equity funds have been the largest since March 2020, indicating that investors have begun to flee the stock market.
$1.1 trillion has flowed into equity funds since early 2021, watchS&P 500 Indexthe average entry point of these funds is 4274 points, which representsS&P 500 IndexInvestors will have to break below 4,000 points for investors to reluctantly exit the market, which is another 3.2% drop from Friday’s close.
Anxieties regarding a global recession, coupled with aggressive policy from the Federal Reserve, have roiled global equities this year and bonds have suffered.
Bank of America strategists said that the stock and bond markets suffered a historic collapse this year, reflecting the central bank’s imminent policy shift from quantitative easing (QE) to quantitative tightening (QT), and the market itself was in very bad mood.
Given the subdued sentiment and holdings, BofA strategists believe that while the market may rebound, it won’t be much.
Comparing current financial markets to 1973-1974, Bank of America said the Fed must tighten policy before high inflation hits the economy or markets, and before that, asset prices are bound to go lower.
