Investors pulled $19 billion from the stock market over the last week, Bank of America said.
It’s the highest outflow all year, coming amid surging bond yields and uncertainty around interest rates.
BofA warned that higher for longer rates threaten to pop the market bubble in the first half of 2024.
Investor outflows from stocks were the highest they’ve been all year in the last week, as markets mull the possibility that interest rates could remain elevated for longer than expected, according to Bank of America.
Stocks saw $18.96 billion of outflows over the past week, Bank of America data shows, the largest weekly outflow recorded since December 2022.
The outflows were capped by the Fed’s policy meeting this week, where chief central banker Jerome Powell warned that the Fed could take interest rates higher for longer than markets have been expecting.
Bond yields surged shortly after Powell’s remarks, with the 10-year Treasury yield touching 4.49%, its highest level since 2007. Meanwhile, the two-year Treasury yield jumped to its highest level since 2006.
The higher for longer regime spells trouble for stocks, the analysts said, and the market could be headed for a tough 2024 as rates stay high.
“H1 ’23 surprise was ‘no recession;’ H2 ’23 surprise is ‘higher-for-longer’ rates (tighter financial conditions),” Bank of America strategist Michael Hartnett said in a note on Friday.
Higher rates raise the risk of a hard landing, he warned, as well as the risk the market “pops and busts” through the first half of the year.
Though the bank no longer sees a recession as its base case this year, signs that the economy is headed for a hard landing are “lining up” for 2024, Hartnett said. The 2-10 Treasury yield curve, the bond market’s notorious recession signal, steepened another 110 basis-points over the past week. Meanwhile, unemployment inched higher to 3.8%, while the personal savings rate rose between 4%-5%, Bank of America data shows.
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