"Old" bull market sputters on while tech inflows slow -BAML
* $2.6 bln into equities, $0.5 bln out of bonds
* U.S. stocks draw $4.1 bln as S&P 500 bull market extends
* Strategists call end of "tsunami" of tech stock inflows
* EM stocks hold up well, European stocks suffer more
* Bull & Bear indicator up to 3.3
By Helen Reid
LONDON, Aug 24 (Reuters) - Investors bought back into U.S.
stocks this week which set their longest-ever market rally,
although risks ahead spurred anxiety over how much longer the
ageing bull can last, Bank of America Merrill Lynch strategists
said on Friday.
They also declared the end of a "tsunami" of tech fund
inflows which have driven the market higher, noting tiny inflows
of $0.1 billion this week after a huge $22 billion ploughed into
Some $2.6 billion flowed into equities funds and $0.5
billion left bond funds as investors' risk appetite recovered
slightly, while $1.2 billion flooded out of gold funds,
strategists said, using figures from flows data provider EPFR.
The S&P 500 extended its bull run to 3,453 days on
Wednesday, the longest such streak in history by calculations
which set the rally's birth at March 9, 2009.
BAML strategists, however, weren't particularly impressed,
dubbing it an "old, deflationary, polarized U.S. bull" in a note
titled "The Old Bull and the Sea" in a nod to Ernest Hemingway's
They argued the S&P 500 is narrow, dominated by Facebook,
Amazon, Apple, Microsoft and Google whose total market cap of
around $4.1 trillion is greater than the combined market cap of
the smallest 283 stocks in the index.
Still, overall inflows this week indicated a hesitant return
to risk and BAML's "Bull & Bear" indicator of market sentiment
drifted up to 3.3 this week from 3 last week.
"Late summer sentiment slowly drifts from bearish toward
neutral," strategists noted.
U.S. equity funds drew in $4.1 billion, leading other
regions by far as outstanding earnings growth, spurred by tax
cuts, set U.S. stocks apart.
European equity funds suffered a 24th straight week of
outflows, losing $1.1 billion. Since March they have given back
all $51 billion of the inflows of 2016 to 2018, strategists
Emerging markets, in contrast, have not seen outflows as
severe as that, with less than 20 percent of EM debt and equity
inflows over 2016-2018 redeemed in the past four months, BAML
This week investors pulled just $0.1 billion from EM stocks,
while EM debt saw its biggest outflows in eight weeks ($1.6
Outside tech, sector flows showed a distinct preference for
"defensive" high dividend, strong earning sectors with inflows
to real estate, healthcare and utilities. Cycle-sensitive
financials, energy and materials sectors saw outflows.
In debt markets, flows into investment-grade bond funds
picked up again with $0.5 billion, while high-yield bond
outflows lessened, losing just $0.5 billion.
Gold is a contrarian buy, strategists suggested, after funds
invested in the precious metal saw their biggest outflows since
December 2016 this week, bringing outflows over the past three
months to $7 billion.
HOT AUTUMN FOR MARKETS
This autumn presents a fork in the road for markets - with
the possibility of severe negative shocks as well as a more
Credit contagion caused by monetary tightening, excess debt
and a peak in the profit cycle could cause widening spreads in
EM debt to hit European high yield and U.S. investment grade,
strategists said, recommending a short in high-yield bonds in
A second possible shock could come from an autumn of
"hardball politics", they said, with Brexit developments,
Italy's budget, and China-U.S. trade disputes weighing on global
purchasing managers' surveys and earnings forecasts.
A sweep by Democrats in mid-term elections could spur a
switch to "populist redistribution", they predicted, for example
tightening stock buyback regulation. The best trade in that
eventuality would be to short U.S. tech, they said.
Among positive catalysts a peak in U.S. inflation, the U.S.
10-year bond yield edging below 2.5 percent, and China stimulus
could help drive EM and European earnings estimates higher, in
which case investors should hold EM and European banks.
An acceleration in U.S. stock buybacks would also help spur
markets, providing a new injection of liquidity akin to
quantitative easing, strategists said.
In 2018 so far 35 percent of U.S. profits are being spent on
buybacks - not far from the peak of 38 percent in 2007.
(Reporting by Helen Reid; Editing by Susan Fenton)
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