Gold prices stabilizes after Fed’s Williams signals a December rate cut
Investing.com -- Bank of America’s Michael Hartnett warns the Federal Reserve is again stumbling into a familiar policy trap, arguing that a mix of stretched valuations, “peak liquidity” and belief in further easing has pushed risk assets into territory reminiscent of late 2018.
In a note to investors, Hartnett said markets are trading on “bubbly ‘animal spirits’ driven by mass rate cuts past 2 year and belief more coming in ’26."
He argues that, as in December 2018, the “quickest route to Fed capitulation” is a selloff led by banks and brokers. His team is already positioned for that outcome, saying “we long zero-coupon bonds to front-run Fed capitulation.”
Hartnett also flags signals from the digital-asset space, calling crypto the “frontier of liquidity & speculation” and stressing that it will likely “be first to sniff out Fed coming to rescue.” Bitcoin has already pulled back about 30% peak-to-trough this year, while Ether is down 41%.
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Flows this past week point to investors shifting defensively, BofA’s report shows. Equities saw a $26.2 billion inflow, while bonds drew $18.1 billion and gold attracted $1.9 billion.
Crypto funds, by contrast, saw $2.2 billion in outflows, the second-largest weekly withdrawal on record. Treasuries pulled in $8.8 billion, the biggest weekly inflow since April, while U.S. value stocks saw their largest inflow in nine weeks.
Sector trends were mixed. Tech drew $4.4 billion and is on pace for a record $75 billion in inflows this year. Healthcare attracted $2.4 billion, its biggest intake since January 2021, while consumer stocks extended a record four-week outflow.
On the style side, U.S. large-cap and value strategies gained momentum, while growth saw significant redemptions.
Emerging markets added $9.2 billion, extending a four-week streak.
In fixed income, investment-grade bonds have now enjoyed 30 consecutive weeks of inflows, while high-yield funds posted a third straight week of outflows.