The locomotive of the unprecedented rally, which has kicked up $ 60 trillion in equity markets in a year, appears to be emitting the last steam.
At the time, US indices were hitting historic records, capital inflows into stocks dropped sharply, and cash outflows soared to record levels for the year.
Last week, hedge funds and other large investors withdrew $ 57.3 billion in cash, according to analysts at Bank of America, whose statistics are cited by the Financial Times.
This amount went to money market funds, where big capital “parks” free funds in anticipation of better times. The outflow to the “cash” became the maximum since March 2020, when world markets experienced a collapse, and the S & P500 index in the United States lost a fifth of its capitalization in a matter of weeks.
Capital inflows into shares amounted to only $ 10.6 billion, which is 5-6 times lower than the record weekly figures in February.
Investors are beginning to be cautious about not seeing an opportunity to make money in either stocks or bonds; Going into the cash is a way to take a break to assess the situation, notes BofA strategist David Jones.
Markets are beginning to prepare for the Biden administration’s announced tax hike that will hit both corporations and investors directly by raising the capital gains tax rate.
In addition, the acceleration in inflation is likely to continue after the $ 1.9 trillion injected in the infrastructure plan of Biden, and this creates risks of the Fed scaling down stimulus measures, Jones said.
The S & P500 is up 88% since March 2020, the fastest rebound from the 1936 bottom. Banks, hedge funds and private traders pressed buy buttons together to the noise of the central banks’ printing presses that pumped $ 10 trillion of money into the system.
The liquidity tsunami has doubled the capitalization of global stock exchanges: having broken the $ 112 trillion mark, it exceeds global GDP by 27%. This is a historic record that is 5% higher than the previous peak set before the 2008 crisis.
“We had an amazing rally, but now the oxygen is running out. The higher you climb, the harder it is to grow, ”says RW Baird Vice President Patrick Spencer.
The skyrocketing market is to some extent trapped in its own hypertrophied expectations, says Marios Hadjikiriakos, an analyst at XM Broker: “Optimism began to go off-scale, and profit forecasts have already been fully taken into account in prices at current levels, so any result other than an absolutely brilliant one will become negative surprise. “