Cash is king for investors early in 2024, says BofA

The rush to cash is extending into 2024 as global stocks started reversing some of last quarter’s rally.

Investors poured $123 billion into cash funds in the week through Jan. 3, according to Bank of America Corp. While inflows to money markets are typical at the start of each year, the sum was the largest ever for the first week, strategists led by Michael Hartnett wrote in a note, citing EPFR Global data. 

Meanwhile, stocks saw a second week of inflows at $7.6 billion and bond funds received $10.6 billion.

The “current inflow episode” into money markets is likely to end in September if the historical trend for Federal Reserve interest-rate cycles hold true, said Hartnett.

For now, cash is maintaining its appeal even after money-market funds received a record $1.2 trillion last year, far above the global inflows to shares, showing investors missed out on 2023’s equity market rally. Stocks have pulled back in the first week of this year, with the MSCI All-Country World index snapping a nine-week rally, as traders are paring back rate cut expectations and await more definitive signals from central banks that they are ready to starting easing policy.

Strategists from HSBC Holdings Plc, Sanford C. Bernstein and Oppenheimer Asset Management have all recently warned of a pause in the equity rally as a result of the elevated optimism at the end of last year. Meanwhile, Citigroup Inc.’s Beata Manthey sees global equities extending gains through 2024 as earnings rebound and central banks begin cutting interest rates, even though she warned of near-term vulnerabilities for European stocks following high bullish positioning.

Bank of America’s Hartnett listed the U.S. presidential elections in November and the BRICS Summit in October among 12 events that he called “known unknowns” that could impact profits and rates this year.

BRICS, with its expanded number of members, now comprises over 46% of the global population, 45% of energy consumption and 37% of the world’s gross-domestic product. Even so, the bloc represents still less than 25% of the global equity market capitalization, with developing-nation equities trading at a 52-year low versus U.S. stocks, according to Hartnett. 

As a result, he recommends buying emerging markets and selling U.S. shares in 2024.