One week after the second biggest ever weekly tech inflows, in Bank of America’s latest weekly fund flow report, CIO Michael Hartnett shows what the annualized tech inflows in 2018 look like, and it is surely a surreal sight for an entire generation of traders, as the last time we observed such sheer uniform panic to plow cash into tech names was just before the dot com bubble… only this time it’s even worse, as the annualized inflows into tech have never been greater, and as shown below, are now almost “off the chart.”
What is odd, is that while traders, investors, algos and passive capital allocators are flooding the FAANGs with money, virtually every other sector is hurting, iin what BofA definies as “Risk-off flows” after $12.9bn pulled out of equities, $5.9bn out of bonds, and $0.8bn out of gold.
Adding to the bipolar nature of the market, amid this “tech panic”, we are observing an accelerating decoupling of the US from the rest of the world, with the US seeing $5.1BN in stock inflows, offset by outflows from all other regions, including a $5.1BN redemption from Emerging Markets, the largest since November 2016…
… while the latest $2.7bn in outflows out of Europe makes it $38.6bn over the past 15 weeks, $1.9bn out of Japan.
These “Quantitative Tightening” flows as Hartnett calls them, have also hit financials, which saw the biggest redemptions since September 2016 at $1.4BN…
… but spread to other asset classes as well, with the highest outflows from IG since Dec. 2016, or some $2.6 billion.
Incidentally, this flow pattern is just as BofA expected in its 2018 roadmap:
asset prices broadly following our peak Profits, peak Policy script YTD; Quantitative Tightening (not tax cuts, trade wars…) is the driver…hence underperformance of QE winners (EM debt, HY, IG), outperformance of QE losers (volatility, cash, commodities, US$);
… with just tech stocks sticking out as the “anomaly”, but as Hartnett notes, those are increasingly “vulnerable to investor deleveraging.” Finally, as BofA adds, it remain bearish until then there is a clear break in SPX below important 2650 level.