Investing.com -- Equity funds saw their largest weekly inflow on record of $68.7 billion, while cash holdings and bond funds experienced significant outflows, according to a Bank of America (NYSE:BAC) report, citing EPFR Global data.
US stock funds led the surge with $82.2 billion in inflows for the week ending December 18, amid a bullish sentiment around domestic equities. Concurrently, $63.8 billion exited money market funds, and $6 billion left bond funds, while crypto attracted $3.1 billion.
US equities are on course for a record inflow in 2024, however, BofA flags “abnormally large daily inflows across all S&P 500 funds” on Wednesday, potentially due to the upcoming quarterly rebalance on Dec. 23.
Meanwhile, high-yield bonds posted their largest outflow since February 2023 at $3.7 billion, and municipal bonds saw their steepest outflows in nearly a year at $1.4 billion.
BofA strategists led by Michael Hartnett attribute this volatility to the Federal Reserve's tightening financial conditions amid an “uber-bullish” market sentiment. The combination of these factors, they note, has added to market nervousness.
Hartnett also highlighted banking sector performance. The strategists said the SPDR S&P Bank ETF (NYSE:KBE) must hold its 2022 high of $55 to “prevent investor flip from trading “melt-up” to “bull trap” ahead of Inauguration day.
Moreover, strategists cautioned that both US and global equity market breadth remain dire. “Winners must keep winning to keep stealth correction ‘under the hood’,” they added.
Regionally, US equities marked their 11th consecutive week of inflows, while emerging market stocks attracted $4.7 billion for a third straight week of gains.
In contrast, Japan saw $1.1 billion in outflows, marking its fifth consecutive week of declines, and Europe extended its streak of outflows to 12 weeks with $2.6 billion in redemptions.
Fixed-income flows painted a mixed picture. Investment-grade bonds posted a 60th straight week of inflows, albeit modest at $200 million.
Treasury funds saw their third consecutive week of outflows at $1.7 billion, while emerging market debt recorded its ninth week of outflows, losing $1 billion. Bank loans continued to see strong interest, adding $1.2 billion for their 11th week of inflows.