Jobs key to resolve the autumn stock market drama says Bank of America

The upcoming labor market data is likely to “resolve autumn ambiguity,” according to Bank of America investment strategists. 

“Payrolls (+/- 100k) to resolve autumn ambiguity…until then risk rotates rather than rips or retreats,” they said.

U.S. stock funds saw their most significant withdrawals since April, as $6.1 billion left the asset class. Concurrently, there has been a notable shift towards cash, with money market funds witnessing $30.2 billion in inflows.

This data, sourced from a Bank of America note and based on figures from EPFR Global, also highlights that bond funds received $16.7 billion and gold saw an influx of $500 million for the week ending on September 11.

Investors have been diversifying their portfolios, with $1.6 billion exiting from equity funds and cryptocurrencies experiencing $200 million in outflows. Money market funds have now amassed assets totaling $6.3 trillion, reaching a record high.

Japanese stocks faced their largest outflow since July, amounting to $1.4 billion. US growth stocks were not far behind, with their biggest outflow since June at $5.6 billion, and similar trends were seen in technology funds and financials, which had their largest outflows since November 2023 at $200 million and $1.6 billion, respectively.

The bank’s strategists have indicated that , currently at all-time highs, is considered the best hedge against potential inflation reacceleration in 2025. Hence, they advised their clients to buy any dips in gold.

They also suggest that commodities like oil and industrial metals could be a contrarian play, being the only asset class priced for a hard landing, in contrast to the SOFR market which is discounting 240 basis points in Federal Reserve cuts over the next 12 months.

The recommendation for investors is to sell stocks at the first rate cut due to the downside risks to payroll and earnings per share forecasts. Conversely, there is a bullish outlook on bonds, with yields expected to head towards 3% as the market underprices hard landing risks.

Gold also has a bullish forecast, with predictions of it reaching $3,000 per ounce amid rising U.S. debt and deficits. The strategists advocate for a barbell approach, favoring bond-sensitive real estate and resources in stock breadth.

In terms of regional activity, Europe saw its third consecutive week of outflows, totaling $1 billion, while emerging market (EM) stocks enjoyed their 15th week of inflows, receiving $2.2 billion.