Bank of America Hartnett: "Still inclined toward risk aversion" in the coming weeks, as US Treasuries set a four-year record for longest inflow streak

Funds continue to flow into US equities, but Bank of America strategists have issued a warning signal, advising investors to remain cautious.

Bank of America’s latest report shows that US equity funds attracted another $39 billion in inflows in a single week. With this trend, the annualized inflow for the year could reach a historic high of $636 billion. Meanwhile, US Treasuries have seen inflows for the 16th consecutive week, marking the longest streak since August 2024.

However, the Bank of America strategist team led by Michael Hartnett clearly stated that given the rise in real yields, the price movements of artificial intelligence and bank stocks, and potential market volatility stemming from the US midterm elections, they "still prefer to avoid risk" in the coming weeks. This stance stands in stark contrast to the strong inflows currently seen in the equity market, sounding a warning bell for investors.

Citing EPFR Global data, for the week ending October 14, global equity funds saw a total inflow of about $64.5 billion, reflecting robust overall funding conditions.

All US equity style funds recorded net inflows: large-cap funds absorbed $32.5 billion, with growth, value, and small-cap funds seeing inflows of $1.6 billion, $1.2 billion, and $1.1 billion respectively, indicating a relatively balanced allocation across styles.

At the sector level, tech stocks topped the ranking with a weekly inflow of $10.7 billion; financial and consumer stocks came under significant pressure, with net redemptions of $1.4 billion and $600 million respectively.

Regionally, emerging market equities saw inflows for the third consecutive week, totaling $17.7 billion; Japanese equity funds rebounded to net inflows after previous outflows, recording $400 million; European equity funds experienced $1.5 billion in outflows.

While the equity markets continue to attract capital, safe-haven assets are also seeing strong inflows, reflecting underlying differences in market sentiment.

US Treasuries posted $3.6 billion in inflows for the week, marking the 16th consecutive week of net inflows—the longest streak since August 2024. Investment-grade bonds also saw $3.5 billion in inflows, maintaining a steady pace. Municipal bonds recorded inflows for the 26th straight week, with $4.5 billion entering funds.

Emerging market bonds posted inflows for the 11th consecutive week, totaling $800 million.

In contrast, high-yield bonds saw outflows for the third straight week, with $900 million withdrawn, reflecting investors' cautious stance on credit risks.

On the asset allocation front, cash funds saw $53.1 billion in outflows for the week, suggesting some funds are being reallocated from money markets to both risk and safe-haven assets.

Gold funds posted only a modest $100 million inflow, demonstrating limited appeal; crypto funds saw about $600 million in redemptions, indicating weak performance.

Bond funds as a whole posted $11.8 billion in inflows, showing steady performance among major asset classes and corroborating the defensive market outlook of Michael Hartnett's team.