$SPY, $XAU, $BAC, $JPL, $USB
All US financial markets are closed Monday, in observance of Labor Day.
It may have taken $204-B of equity outflows this year, but the BofAML Bull & Bear Indicator is finally flagging a contrarian “buy signal,” its 1st since 3 January.
Bank of America Merrill Lynch (NYSE:BAC) is Bullish on risk assets for Y 2019, particularly stocks and commodities. Investors’ positioning, as well as Dovish central bank monetary policies are powering that view. The strategists highlighted that the trade dispute has so far pushed interest rates lower, not triggering a recession.
“The decline in the Bull & Bear Indicator was driven by emerging-market debt and equity outflows, a rapid rally in Treasuries against corporate bonds, and oversold MSCI equity country indexes,” BofAML strategists wrote in a note to clients last Friday. The reading shows an “extremely bearish” positioning from investors it said.
Investors have demonstrated a dislike for equities this year, switching their exposure aggressively to bonds and gold, according to figures from fund flow and asset allocation data provider EPFR.
Fixed-income assets attracted $325-B of inflows this year, including a record $160-B in the past 3 months alone, a clear sign of global recession fears and capitulation to the “Japanification” theme.
As for gold, the precious metal’s safe-haven status is underscored by $12-B in Y 2019 inflows.
JPMorgan Chase & Co. (NYSE:JPM) also gave a Bullish outlook on stocks earlier this week, saying they expect stocks to move North again, starting with an up trend in September.
That contrasted with UBS Global Wealth Management, which said it had gone underweight on equities for the 1st time since the Euroarea crisis, to reduce exposure to trade disputes and political uncertainty.
September will be a Key month for US and ECB monetary policy.
The Fed is expected to cut interest rates further, while the European Central Bank signaled it may reduce borrowing costs and restart QE (quantitative easing), although not all policy makers agree that the outlook is weak enough to warrant the resumption of bond purchases.
Since Y 2000, the BofAML Bull & Bear Indicator has sent 16 “buy” signals, providing a median 3-month return for global stocks of 6.3%, and a hit ratio of 10 out of 16.
Have a terrific Labor Day holiday.