BofA clients exit stocks fearing recession

The bank's private clients have favored bonds in the past week.

Bank of America Corp.’s clients are fleeing equities as the risk of an economic contraction remains high, strategist Michael Hartnett said.

Private clients were net sellers of stocks for a second straight week in the five days through Aug. 2, while bond purchases were the strongest since October in the past two weeks, according to a note from the bank.

“Private clients are shifting back to ‘risk-off’ mode,” Hartnett wrote, adding that a hard landing was still a risk for the second half of 2023 amid higher bond yields and tighter financial conditions.

The strategist was correct with his bearish prediction in 2022, but his pessimistic view this year hasn’t played out as US equities rallied for five straight months until the end of July. That was driven by optimism that the US economy could avoid a recession on the back of cooling inflation and resilient economic data.

The early days of August have been tumultuous, however, as a downgrade of US government debt by Fitch Ratings lifted yields and prompted some profit-taking in stocks. The focus later on Friday will be on the monthly jobs report for July for clues on the strength of the labor market.

Inflows into technology funds remained strong despite the recent pullback, with the sector attracting almost $6 billion in the past four weeks, according to the note from Bank of America, citing EPFR Global data.

Other highlights from the note:

Global equity funds had inflows of $4.8 billion in the week through Wednesday, while $7.2 billion entered bond funds and $20.4 billion went into cash
European stock outflows extended to 21 weeks at $3.3 billion
Financials and consumer had the biggest outflows among sectors