Bank of America strategists suggest that the S&P 500 can maintain its trading level above 4,200 points in the near term as long as Treasury yields don't surpass 5%.
They note that a drop below 4,200 points in the fourth quarter could be driven by a stronger dollar, higher yields, and oil rising above $100 a barrel.
“Critical levels of 5% for Treasury yields & 4.2k not breached, aided by a. goldilocks payroll, b. no surge in oil despite events in Middle East, c. China “stimulus,” and most important…d. aggressive Fed jawboning of yields lower,” analysts wrote in their regular weekly note.
In the week through October 11, approximately $8.2 billion exited global stock funds, while cash funds received $16.9B, and bond funds attracted $3.7B, as reported by Bank of America, referencing EPFR Global data.
Looking ahead to 2024, analysts speculate that a combination of a recession and Fed rate cuts could drive gains in bonds and gold, as well as a broader stock rally.
The BofA Bull & Bear indicator has dropped to 2.2, the lowest level since April. A drop to 2 would trigger a contrarian buy signal, which could happen in the next two-to-three weeks if certain conditions are met.
Analysts also highlighted the fact that so far 2020s have been the 3rd worst decade for real returns after 1930s & 1970s.
“Underlying US inflation stuck around 4%; thus far in 2020s CPI has averaged 4.7% (vs 1.8% in 2010s); adjusting for inflation decade-to-date annualized returns…3.7% for SPX 3.7%, 1.0% SPW, -0.2% ACWI, -7.3% US Treasuries…best Wall Street asset measure is NYSE & real annualized return -1.8%,” analysts added.
In terms of fund flows, U.S. stocks experienced outflows of $3B, and European redemptions extended to 31 weeks. By investment style, U.S. large-cap funds saw inflows of $1.1B, while growth, small-cap, and value funds experienced outflows.
The communication services sector led in terms of inflows, while the consumer and financial sectors saw the biggest redemptions.