Global equity funds have experienced a significant surge in inflows, amassing approximately $59.5 billion over the past four weeks, marking the most substantial increase since February 2022, as reported by Bank of America.
This uptick in investment is highlighted by the $16.1 billion that flowed into stocks in the week ending February 14, according to the bank's analysis based on EPFR Global data. Meanwhile, bond funds also saw substantial additions, totaling $11.6 billion, in contrast to the $18.4 billion exodus from cash funds.
Amid these inflows, analysts at Bank of America point out a concerning trend in the U.S. equity market. The market's breadth, or the spread of participation among stocks in market advances, is at its lowest since March 2009.
This is evidenced by the fact that the top five stocks have driven 75% of the S&P 500’s year-to-date gains, indicating a highly concentrated rally.
Analysts also comment on the broader economic backdrop, noting the significantly higher global debt levels compared to historical norms. They suggest that to quell the current enthusiasm surrounding artificial intelligence and the so-called "Magnificent Seven" stocks, real rates for 10-year securities would need to increase to between 2.5% and 3%.
“No two bubbles alike (try blowing a couple yourself) but similarities to gauge Magnificent 7 today are catalyst, price, valuation & "price of money",” analysts said in a note.
In terms of market sentiment, the Bank of America bull and bear indicator has decreased slightly to 6.6 from 6.8, influenced by the reduced equity market breadth and adjustments in oil hedging.
Fixed-income markets also showed notable movements, with investment-grade bonds attracting inflows of $10.3 billion and high-yield bonds receiving about $500 million.
However, emerging market debt faced a setback, with outflows resuming at $600 million. In the equity domain, U.S. stocks witnessed the largest inflow in seven weeks, amounting to $11 billion, whereas European stocks continued to see redemptions for the seventh consecutive week, totaling $800 million.