According to Bank of America's strategist, investors are flocking to the US stock market due to the expectation of a September rate cut by the Federal Reserve and the anticipation of Donald Trump's victory in the election.
Citing EPFR Global data, the Bank of America team led by Michael Hartnett said that US equity funds absorbed approximately 45 billion US dollars in the week ending on Wednesday, the fourth largest inflow in history. Small-cap stock funds had an inflow of $9.9 billion, the second largest in history, and large-cap stock funds had an inflow of $27.4 billion.
The strategist said that traders have turned bullish ahead of the Fed's first rate cut. He added that investors now expect a 100% chance of a rate cut by the Fed in September, a 75% chance of Donald Trump winning the US presidential election, and a 68% chance of a 'soft landing' in the next 12 months.
He believes that risk appetite is rotating rather than diminishing. He expects funds to move from the dollar to gold and from large enterprises to small ones.
Hartnett also said that stocks might meet with selling pressure after the Fed's rate cut, calling it an opportunity to "buy the rumor, sell the fact." His team is also bullish on bonds, because he expects deflation rather than inflation in the next 12 months after Trump's victory, which is contrary to market expectations.
This is because voters, especially the younger generation, consider the cost of living to be one of the most important issues. The strategists said, "Voters want low inflation."