BofA warns stocks close to issuing a sell signal

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(Updated – February 9, 2024 8:04 AM EST)

Bank of America equity strategists highlighted the continued preference for cash among investors, with cash seeing a significant $40.1 billion inflow for the week ending February 7th.

In contrast, US stocks experienced their largest outflow in five months, totaling $15.6 billion, underscoring a shifting sentiment away from American equities. On the other hand, emerging market equities enjoyed a record inflow of $20.8 billion, propelled mainly by substantial investments in China, which accounted for $19.8 billion of the total, likely spurred by allocations from China’s public funds.

BofA strategists interpret these movements as nearing a sell signal for the stock market, suggesting that what was a positive momentum for stocks in 2023 is turning into a headwind in 2024.

“A number of BofA proprietary trading rules are (unsurprisingly after a SPX move from 4k to 5k in 12 or so weeks) closing in on “sell signals”,” analysts said in a note.

However, they note that the market is “not quite there yet.”

“Bear positioning in 2023 was markets’ best friend; in 2024 positioning flipping from tailwind to headwind; not quite there yet, and mustn’t forget the old market adage “tops are a process, lows are a moment” (because human nature means “fear” so much more easier to reverse than “greed”), and mustn’t forget that in bubbles markets show little respect for positioning.”

Despite the significant inflows into cash, with money market funds now holding over $6 trillion in assets, there’s an indication that cash inflows have not yet peaked. Emerging market debt saw its largest inflow since April 2023, amounting to $400 million, while the real estate sector faced its most considerable outflow since May 2022, at $1.1 billion, likely influenced by concerns over US regional banks.

The regional breakdown shows that emerging markets recorded their tenth consecutive week of inflows, and Japan enjoyed its fourth week of inflows, totaling $1.1 billion.

Conversely, Europe marked its sixth week of outflows, with $1.7 billion leaving the region.

Source: Investing.com