‘3600 is the New Bull Case’: Outflows from Energy and Materials Highest in Several Years

By Senad Karaahmetovic

In a client note titled “3600 is the new bull case” (heard on the Street), Bank of America strategist Michael Hartnett has reflected on flows in a week to Wednesday.

The bank calculates that the stock market dropped by 1 US economy in 6 months. BofA’s Bull & Bear Indicator is now at 1.5, which is a clear contrarian “buy” signal. The BofA Global Breadth Rule is also in the contrarian “buy” signal territory.

“Markets are great storytellers…the story of 2022 is “inflation shock = rates shock = recession shock;” the larger story of the 2020s is regime change, higher inflation, higher rates, higher volatility, & lower asset valuations, driven by trends in society (inequality), politics (populism/progressivism), geopolitics (war), environment (net-zero), economy (de-globalization), demographics (China population decline), all inflationary, all favor cash, commodities, real assets, volatility, small cap, all damage bonds, credit, private equity, tech stocks,” Hartnett said in a client note.

As far as flows are concerned, investors pulled $1.4 billion from gold, $5.2 billion from equities, $7.6 billion from cash, and $12.3 billion from bonds.

Looking at the sectors, the market saw the most significant outflows from energy and materials since 2016 and 2014, respectively.