BofA: Rate cuts no longer about ‘if’ or ‘when’, but a question of ‘will cuts work?’

During a week marked by a global equity market rout, cash attracted the majority of inflows, while investors also seized the opportunity to buy the dip in Japanese stocks, Bank of America revealed in a new report.

Money market funds saw significant inflows, with $80.8 billion, while bond funds received $10 billion, and equity funds garnered $9.7 billion.

On the other hand, $100 million exited crypto assets, and $500 million was pulled from gold during the week ending August 7, according to BofA.

Notable flow trends included Japanese stocks attracting their third-largest inflow of the year at $4 billion, while European stocks faced their largest outflow since September, with $2.4 billion leaving the market.

Financials also saw significant withdrawals, recording their biggest outflow since November at $1.1 billion. Conversely, technology stocks enjoyed their sixth consecutive week of inflows, amounting to $3.3 billion.

BofA strategists noted that higher-for-longer real interest rates are “slowly and decisively hurting US consumer & labor market.”

“Global rate cuts no longer question of “if” or “when”,” they noted, but are rather simply a question of “will cuts work?” Strategists believe that “big cuts [are] needed to work.”

“We remain in “sell the 1st cut” camp,” they added.

The team also highlighted key technical levels that, if breached, could shift the Wall Street narrative from a soft to a hard landing. These include 4% on the 30-year Treasury, 400 basis points on the HY CDX, and 5050 on the .

Region-wise, the U.S. saw its sixth consecutive week of inflows, totaling $6.4 billion, while emerging market stocks recorded their tenth week of inflows at $2.3 billion.

In terms of investment style, U.S. large-cap stocks attracted $10.4 billion in inflows, whereas U.S. small-cap stocks faced $3.3 billion in outflows, and U.S. growth stocks saw $3.8 billion in outflows.

On the fixed-income front, investment-grade bonds experienced their 41st consecutive week of inflows, totaling $9.4 billion. High-yield bonds, however, saw their largest outflow since October at $2.7 billion, while bank loans experienced their biggest outflow since March 2020 at $2.6 billion.

TIPS recorded their largest inflow since April 2022 at $500 million, and Treasuries marked their 14th consecutive week of inflows, totaling $4.7 billion. Emerging market debt saw its second consecutive week of outflows at $400 million.