SUPERNEWS

Macro

$21.1B Pulled from Stocks Amid Rate Hike Worries, Bonds Gain

Investors pull $21.1 billion from stocks in two weeks, marking largest outflow since December 2022 amid rate hike fears.

By Barry Stearns

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4/19, 04:59 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
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Key Takeaway

  • Investors withdrew $21.1 billion from stock funds in two weeks, the largest outflow since December 2022, amid rate hike fears.
  • Strong US economy and inflation concerns are shifting investor sentiment, leading to reduced bets on rate cuts.
  • High-yield bonds show signs of a negative market transition, contrasting with $5.7 billion moving into bond funds.

Equity Outflows Surge

Investors have withdrawn a staggering $21.1 billion from stock funds in the two weeks leading up to Wednesday, marking the most significant fortnightly redemption since December 2022. This massive pullback, as reported by Bank of America Corp. strategists and based on EPFR Global data, underscores a growing caution among investors. The strong US economy and persistent inflation are prompting fears that the Federal Reserve may maintain elevated interest rates for an extended period, challenging the earlier optimism that buoyed stocks in the first quarter.

High-Yield Bonds Signal Caution

The shift in investor sentiment is also evident in the high-yield bond market, where there has been a notable exodus. US corporate high-yield notes, or junk bonds, experienced their largest outflow in over a year, with investors pulling out $3.75 billion in the week ending April 17. This withdrawal, the most significant in 14 months according to LSEG Lipper data, reflects growing concerns over the Federal Reserve's firm stance on inflation. The resulting increase in Treasury yields has adversely affected returns for both high-yield and investment-grade bonds, pushing them into negative territory for April and setting them on course for their worst monthly performance since September.

Mixed Flows in Other Segments

While equities and high-yield bonds face outflows, other areas of the financial markets are witnessing varied movements. Nearly $160 billion exited cash funds, indicating a shift away from the safety of cash reserves. Conversely, bond funds attracted $5.7 billion, suggesting a search for safer, income-generating investments amid the current market volatility. Investment in short- and medium-term investment-grade notes saw a modest inflow of $170 million, the smallest in four months, while US leveraged loan funds added a mere $153.3 million, the least in 10 weeks.

Street Views

  • Michael Hartnett, Bank of America Corp (Neutral on equities):

    "Good economic news is now bad news for stocks... Evidence of this is the $21.1 billion investors redeemed from stock funds in the two weeks through Wednesday, the most in a fortnight since December 2022."