Since Covid, Investors Have Poured The Most Money Into Cash

On Friday, BofA Global Research reported that investors poured a record amount of money into cash funds in the week to Wednesday than they had at any time since the depths of the pandemic in 2020.

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A total of $68.1 billion was pumped into cash funds, according to data cited by Bank of America, citing EPFR. This appears to be the largest cash influx since a $126.4 billion inflow took place in the week of April 24th, 2020, based on previous flow reports from the bank.

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Investors weighed a raft of data that reinforced the view that interest rates are not going to peak anytime soon, and no cuts are likely this year, as shares hit two-month lows and bond yields spiked.

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When real interest rates begin to rise, investors tend to steer clear of stocks and gold, both of which tend to struggle in a rising interest rate environment.

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By referring to inflation as a "secular reality" as opposed to a cyclical phenomenon, the BofA analysts have hailed the end of an "era of extraordinary monetary policy".

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As a result of higher inflation and higher interest rates, they note cash would have the same long-term value as bonds and stocks until the bear market comes to an end along with an expected credit event that would end the current bear market.

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BofA analysts said such a credit event could be triggered by higher rates in the "Anglo-Saxon real estate" sector.

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It was noted by the bank that U.S. mortgage applications were at their lowest since April 1995, while house prices in the United States, the United Kingdom, Canada, Australia, and New Zealand were either declining or stagnating.

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Long-term investors are advised to buy assets that offer "solutions to society's problems," such as infrastructure, inequality, and climate change, as well as value stocks, banks, and European assets that lost out under the zero-rate environment.

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Inflows into bonds totaled $8.4 billion, outflows from global stocks totaled $7.4 billion, and gold funds lost $900 million.

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While investors were leaving emerging market debt on the table and buying emerging market equities on the table, they shed $1.8 billion in emerging market debt.

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It was reported Thursday that BofA's bull and bear indicator - which measures the sentiment of the market - rose marginally to 4.3 from the previous week's 4.2.