BofA’s Hartnett says this is a correction, not a bear market in U.S. stocks

Investing.com -- Bond funds attracted the bulk of inflows over the past week, while global stocks saw their largest outflows this year, Bank of America revealed Friday.

Citing EPFR Global data, BofA said bond funds recorded a $7.3 billion inflow in the week to March 12, gold funds saw $1.9 billion in inflows, and money market funds drew $1.8 billion.

Meanwhile, equities had $2.8 billion in outflows, and crypto funds lost $2 billion.

U.S. stocks faced their biggest year-to-date outflows at $2.5 billion, marking the start of an unwind of the $121.3 billion inflows seen earlier this year.

European equities recorded a $5 billion inflow, the largest five-week inflow since August 2015, while emerging market stocks resumed outflows at $3.3 billion.

Treasuries had their biggest inflow since August at $6.4 billion, reflecting a risk-off sentiment, while high-yield bonds posted their largest outflow in 12 weeks at $2.3 billion.

BofA strategists led by Michael Hartnett see the latest weakness in U.S. stocks “a correction, not a bear market.”

They believe that concerns about a potential recession and further stock declines will likely push policymakers to shift trade and monetary policy back toward market support.

Historically, corrections tend to end when cash levels surge, high-yield spreads widen, and equity outflows accelerate, with Hartnett identifying 5,300 as a good buy level for the S&P 500.

BofA’s report also highlights ominous market conditions with "down-in-yields/down-in-stocks" patterns, reminiscent of downturns in 2000, 2002, and 2008.

But on a more positive note, financial conditions are easing, with lower yields, a softer dollar, and declining oil prices.

“Corrections end once sell-off “laggards” crack [and] “leaders” stabilize,” the strategists noted.

Regionally, European equities maintained momentum with their fifth straight week of inflows, totaling $5 billion.

Japan equities extended their streak with $900 million in inflows over three weeks.

In contrast, emerging markets continued to struggle, with $3.3 billion in outflows.

Fixed income flows remained strong. Investment-grade bonds saw their 72nd consecutive week of inflows, totaling $4 billion.

High-yield bonds experienced their first outflow in eight weeks at $2.3 billion, while emerging market debt had its first outflow in four weeks at $1.2 billion.

Bank loans also saw their first outflow since October 2024 at $900 million, reflecting investors adjusting expectations for Fed policy shift.