The Flow Show

Not since 1787…

Authored By
Analyst Name Michael Hartnett
Analyst Email michael.hartnett@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 1508
Analyst Name Elyas Galou
Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.
Analyst Email elyas.galou@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofASE (France)
Analyst Phone +33 1 8770 0087
Analyst Name Anya Shelekhin
Analyst Email anya.shelekhin@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 3753
Analyst Name Myung-Jee Jung
Analyst Email myung-jee.jung@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 0389
Report Details
31 August 2023 Investment Strategy Global

The Flow Show

Not since 1787…

Authored By
Analyst Name Michael Hartnett
Analyst Email michael.hartnett@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 1508
Analyst Name Elyas Galou
Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.
Analyst Email elyas.galou@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofASE (France)
Analyst Phone +33 1 8770 0087
Analyst Name Anya Shelekhin
Analyst Email anya.shelekhin@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 3753
Analyst Name Myung-Jee Jung
Analyst Email myung-jee.jung@bofa.com
Analyst Designation Investment Strategist
Analyst Region BofAS
Analyst Phone +1 646 855 0389
Report Details
31 August 2023 Investment Strategy Global
Glossary
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Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies.

>> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.

Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions.

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

 

 

Key takeaways
  • 10-year UST on course for 3rd consecutive annual loss, has never occurred in 250-year history of US republic
  • 40% surge US nominal GDP past 3 years (on back of $13tn Fed/govt stimulus); stocks love nominal booms, bonds less so
  • HY, homebuilders & semis to signal shift from "soft" to "hard" handing in autumn; stick with "sell the last rate hike"

BofA Data Analytics


The Flow Show

 

Chart 1: BofA Bull & Bear Indicator

Rises to 4.4 from 4.1

Chart 1: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy

The indicator identified above as the BofA Bull & Bear Indicator is intended to be an indicative metric only and may not be used for reference purposes or as a measure of performance for any financial instrument or contract, or otherwise relied upon by third parties for any other purpose, without the prior written consent of BofA Global Research. This indicator was not created to act as a benchmark.

BofA GLOBAL RESEARCH

 

 

The Flow Show
   

Scores on the Doors: crypto 38.9%, stocks 15.5%, gold 7.0%, HY bonds 6.7%, IG bonds 3.5%, cash 3.1%, commodities 2.3%, oil 1.7%, US dollar -0.4%, govt bonds -0.9%, YTD.

Zeitgeist: net 44% of Americans now support labor unions, highest since '72 (Chart 7); policies of fiscal excess, redistribution, protectionism aiding recovery in labor share of GDP from secular low of in 2010s (and AI = UBI if robots replace humans en mass).

The Biggest Picture: 10-year Treasury on course for 3rd consecutive loss (-0.3% in '23, -17.0% in '22, -3.9% in '21)has never occurred in 250-year history of US republic (Chart 2); reflects staggering 40% jump in US nominal GDP (growth + inflation) since '20 COVID lows (Charts 3 & 4); note commodities best performing Q3 asset class, up 11%).

Tale of the Tape: 40% surge US nominal GDP past 3 years (on back of $13tn Fed/govt stimulus) surpassed only in '49-'52 (43%) & '75-'79 (44%); stocks love boomsS&P500 +136% in '49-'52, +97% in '75-78, +113% since Mar'20 lows; big differencein prior 2 nominal booms value outperformed growth stocks by 45ppt & 105ppt, complete reverse past 3 years (-27ppt) + breadth so narrow (worst for MSCI ACWI since '03 - Chart 6).

The Price is Right: US jobs market softerjob openings/unemployed ratio lowest since Sep'21 = strong tell Fed is done (Chart 5); benign Aug payroll (e.g. AHE <0.3%) last piece of Goldilocks jigsawthen we say HY, homebuilders (Chart 8) & semis to signal shift from "soft" to "hard" in Sept/Oct…"sell the last rate hike."

Chart 2: Never in the history of the US republic have US Treasury returns fallen 3 years in a row

US 10-year government bond annual returns %

Chart 2: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, Bloomberg, Global Financial Data

BofA GLOBAL RESEARCH

More on page 2

 

The Flow Show 

  Weekly Flows: $10.3bn to stocks, $6.5bn to cash, $1.7bn to bonds, $0.3bn from gold.

Flows to Know:

  • Cash: inflow ($6.5bn)$932bn inflows YTD (Chart 10),
  • Bonds: 23rd straight week of inflows ($1.7bn),
  • Credit: 1st inflow to HY ($1.0bn) & 1st outflow IG ($0.5bn) in 6 weeks,
  • EM debt: 5th straight week of outflow ($1.7bn - Chart 11),
  • Equities: strong equity inflow driven by strong EM inflow ($4.9bn),
  • Tech: 10th straight week of inflows ($5.1bn) & largest since May'23 (Chart 12),
  • Tech: dominant sector YTD ($34bn inflowsnext largest "consumer" with $4bn),

BofA Private Client: $3.2tn AUM59.8% stocks, 21.5% bonds, 11.9% cash; private clients buying Japan, growth, REITs ETFs, selling TIPS, utilities, financials past 4 weeks.

BofA Bull & Bear Indicator: rises to 4.4 from 4.1 (5-month high), on strong EM equity inflows, improving breadth, most bullish hedge fund positioning since May'22 (record bullish 2-year Treasuries).

Asset Returns in 2020s: big picture in 2020s vs 2010s is lower stock & bond returns which we would expect to continue given political, geopolitical, social & economic trends (yes fab '23 for stocks & big bounce since COVID, albeit very concentrated in US stocks/tech (breadth in global markets breathtakingly badfor MSCI ACWI worse since 2003- Chart 6); but

  • NYA Index (securities traded on NYSEUS stocks, ADRs, bond ETFs best measure of Wall St) annualized price return of 6.8% in 2010s vs 3.6% in 2020s,
  • 60-40 portfolio of US stocks & bonds up 6.8% annualized in 2010s vs 4.2% in 2020s (by comparison a 25/25/25/25 portfolio of US stocks/bonds/cash + commodities annualizing a 3.9% return in 2020s thus far),
  • 60-40 portfolio of global stocks & bonds up 4.3% annualized in 2010s vs just 1.9% in 2020s (which is actually lagging the 2.9% annualized return of 25/25/25/25 portfolio of global stocks/bonds/cash + commodities this decade).

Chart 3: 3-year US GDP growth >40% only 2 other times since 1940s

US nominal GDP growth since start of expansion cycle*

Chart 3: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source:. BofA Global Investment Strategy, Haver. *'20-current cycle includes Q3'23 based on Atlanta Fed forecast (10% QoQ, annualized)

BofA GLOBAL RESEARCH

 

 

Chart 4: From Covid low to Q3'23, nominal GDP up 40%...

US nominal GDP & Atlanta Fed forecast

Chart 4: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, Bloomberg, Atlanta Fed.

BofA GLOBAL RESEARCH

 

 

Chart 5: Job openings/unemployed peaking = sign Fed is done

Fed Funds Rate vs US job openings/unemployed

Chart 5: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, Bloomberg

BofA GLOBAL RESEARCH

 

 

Chart 6: Breadth in global stocks narrowest since 2003

MSCI ACWI Equal Weighted vs MSCI ACWI (price relative)

Chart 6: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, Bloomberg

BofA GLOBAL RESEARCH

 

 

Chart 7: Labor on the Rise

Labor as % of US GDP vs net % approval of labor unions

Chart 7: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, Bloomberg, Gallup

BofA GLOBAL RESEARCH

 

 

Chart 8: Homebuilders say 'soft,' Retail says 'hard' landing

Homebuilders ETF (XHB) vs. Retail ETF (XRT)

Chart 8: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, Bloomberg

BofA GLOBAL RESEARCH

 

 

Chart 9: Profits & payrolls correlated

US nonfarm payrolls vs ISM manufacturing PMI

Chart 9: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, Bloomberg

BofA GLOBAL RESEARCH

 

 

Chart 10: Inflows to cash continue

Flows to money market funds vs 4-week MA ($bn)

Chart 10: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, Bloomberg

BofA GLOBAL RESEARCH

 

 

Chart 11: 5 weeks of outflows from EM debt

Flows to EM debt funds vs 4-week MA ($bn)

Chart 11: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, EPFR

BofA GLOBAL RESEARCH

 

 

Chart 12: Longest streak of inflows to tech since Sep'21

Cumulative flows to tech funds since 2016 ($bn)

Chart 12: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy, EPFR

BofA GLOBAL RESEARCH

 

 

     

Asset Class Flows (Table 1)

Equities: $10.3bn inflow ($14.3bn inflow to ETFs, $4.0bn outflow from mutual funds)

Bonds: inflows past 23 weeks ($1.7bn)

Precious metals: outflows past 14 weeks ($0.3bn

 

  Table 1:  Cumulative YTD flows by asset class

Global flows by asset class, $mn

For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

   

Wk % AUM

YTD

YTD %AUM

Equities

0.1%

87,487

 0.5%

ETFs

0.2%

288,051

3.8%

LO

0.0%

-199,752

-2.3%

Bonds

0.0%

232,017

3.5%

Commodities

-0.2%

-8,827

-2.5%

Money-market

0.1%

931,638

12.3%

*week of 08/30/2023: Source: EPFR Global

BofA GLOBAL RESEARCH

 

 

Fixed Income Flows (Chart 13)

IG Bond outflows resume ($0.5bn)

HY Bond inflows resume ($1.0bn)

EM Debt outflows past 5 weeks ($1.7bn)

Munis inflows resume ($0.7bn)

Govt/Tsy inflows past 29 weeks ($3.1bn)

TIPS outflows past 5 weeks ($1.4bn)

Bank loan inflows past 5 weeks ($0.5bn)

 

Equity Flows (Table 2)

US: inflows resume ($4.5bn)

Japan: inflows past 5 weeks ($0.2bn)

Europe: outflows past 25 weeks ($0.3bn)

EM: inflows past 8 weeks ($4.9bn)

By style: inflows US large cap ($3.2bn), US growth ($0.6bn), outflows US small cap ($0.7bn), US value ($1.2bn).

By sector: inflows tech ($5.1bn), utes ($0.2bn), outflows com svs ($30mn), consumer ($60mn), materials ($0.2bn), financials ($0.2bn), hcare ($0.3bn), energy ($0.3bn), real estate ($0.4bn).

 

  Table 2:  Inflows to EM equities, outflows from DM YTD

Global equity flows by region

For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

  

Wk % AUM

YTD

 Total Equities

 0.1%

87,487

  long-only funds

0.0%

-199,752

ETFs

0.2%

288,051

  Total EM

0.3%

94,375

 Brazil

-0.5%

281

Russia

0.0%

-52

India

0.9%

7,983

China

1.4%

65,792

Total DM

0.0%

-6,888

 US

0.1%

-16,275

Europe

0.0%

-44,640

Japan

0.0%

8,581

International

0.0%

42,331

Total Equities = Total EM + Total DM

Source: EPFR Global

BofA GLOBAL RESEARCH

 

 

 

  Chart 13:  FICC inflows to bank loan, Treasuries, HY bonds

Weekly FICC flows as a % AUM

Chart 13: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: EPFR Global

BofA GLOBAL RESEARCH

BofA private client flows & allocations

  Chart 14:  Private clients bought Japan, munis, sold EM debt, TIPS

BofA private clients 4-week ETF flows as % of AUM

Chart 14: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global investment Strategy

BofA GLOBAL RESEARCH

 

 

Chart 15: GWIM equity allocation at 60%

BofA private client equity holdings as % of AUM

Chart 15: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global investment Strategy

BofA GLOBAL RESEARCH

 

 

Chart 16: GWIM debt allocation at 21%

BofA private client debt holdings as % of AUM

Chart 16: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy

BofA GLOBAL RESEARCH

 

 

Chart 17: GWIM cash allocation vs LT average

BofA private client cash holdings as % of AUM

Chart 17: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy

BofA GLOBAL RESEARCH

 

 

  Chart 18:  GWIM ETF holdings as % of AUM

BofA private client ETF holdings as % of AUM

Chart 18: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy

BofA GLOBAL RESEARCH

 

 

  Chart 19:  GWIM top 10 stocks for 1-year SPX beta

1-yr S&P 500 beta for top 10 stocks held by BofA private clients

Chart 19: For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732

Source: BofA Global Investment Strategy

BofA GLOBAL RESEARCH

 

 

The Asset Class Quilt of Total Returns

Chart 20: REITS worst returning asset class YTD

Ranked cross asset returns by year since 2000