(Bloomberg) -- Investors are flocking to US equities as they grow more certain of a September cut by the Federal Reserve and that Donald Trump will win the US presidential election, according to Bank of America Corp. strategists.
US equity funds absorbed about $45 billion — the fourth-largest inflow on record — in the week through Wednesday, a team led by Michael Hartnett wrote in a note, citing EPFR Global data. Small-cap funds had $9.9 billion of inflows, the second-largest ever, while large-cap funds received $27.4 billion.
Traders are turning bullish ahead of the first Fed cut, the strategist said. Investors are now assigning a 100% probability of a Fed rate cut in September, a 75% probability of Trump winning the US presidential election and a 68% probability of a “soft landing” in the next 12 months, he added.
In his view, risk appetite is rotating, rather than retreating. He expects flows to go to gold from the dollar, to leveraged companies from monopolies and to small caps from large firms.
Hartnett also said its likely stocks will selloff after the Fed rate cut, calling it a “buy rumor, sell fact” opportunity. His team is also bullish on bonds as he expects any new tariffs enacted by Trump over the next 12 months to be “deflationary than inflationary,” as opposed to market expectations.
That’s because voters — especially the younger generation — see cost of living as one of the most important issues. “Electorate wants low inflation,” the strategists said.
US stock futures traded steady on Friday, with the S&P 500 Index headed for the worst week since April.
Goldman Sachs Group Inc. strategists in a separate note also warned of the risk of a setback for the equities this summer, adding that a correction rather than a bear market was more likely.
That’s “due to the combination of weaker growth data, already more dovish central bank expectations and rising policy uncertainty into the US elections,” a team led by Christian Mueller-Glissmann wrote in a note. He turned neutral across assets on a three-month horizon but is still overweight on equities over the next 12 months.
--With assistance from Michael Msika.
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