Investors swap cash for stocks in rapid frenzy ahead of Fed meeting

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Investors pulled nearly $62B out of cash accounts this week

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Investors this week pulled cash and poured money into stocks at the fastest pace in more than a year, betting the Federal Reserve would continue to support the markets.

Bank of America, citing EPFR data, said about $62 billion was withdrawn from cash accounts in the week ended Wednesday. Of this, $51.2 billion went to equities, $16.1 billion to bonds and $37 million to gold.

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A record $28.3 billion was invested in US large-cap stock funds, while tech stocks saw inflows for the 12th straight week, which has seen $3.2 trillion enter the space.

Billionaire fund manager Gundlach dismisses ‘transitary’ inflation

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Bank of America strategists, led by Michael Harnett, wrote “a “monster redistribution of cash-to-stock” was a “monster redistribution of cash-to-stock” as the threat of tax redistribution subsided and the Fed expected to remain Wall St-friendly. Cited the easiest liquidity since — three months before the S&P 500’s Great Financial Crisis.

The Federal Reserve will hold its September policy meeting with economists next week, with the central bank expected to reduce asset purchases by $120 billion a month later this year.

The Fed “might indicate — but not formally announce — the taper will begin later this year,” said Michael Pierce, senior US economist at research firm Capital Economics.

The tapering discussion has gone on investors’ radar after Fed Chairman Jerome Powell said during his Jackson Hole seminar speech last month that inflation at current levels is “cause for concern.”

Inflation concerns come as the labor market shows signs of consolidating around the end of $300 a week in supplemental unemployment benefits. Continuous jobless claims fell to a pandemic-era low of 2.67 million for the week ended September 4. The report was released a day before the supplement benefits ended.

Powell said the tapering is not “a direct indication of the timing of interest rate liftoff,” leading many investors to believe the stock market may continue to climb to record highs.

He has continued to pour money into the stock market despite several Wall Street strategists recently sounding the alarm over the prospect of a stock market sell-off.

Bank of America’s Savita Subramaniam warned earlier this month that the firm’s internal indicators said sentiment was “everything encouraging” and closer to a sell signal than at any point since 2007.

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Morgan Stanley strategist Adam Sheets expressed similar concerns, saying the next two months “pose a major risk to growth, policy and the legislative agenda.”

The benchmark S&P 500, which is up 18% this year, has gone 377 days without a 10% pullback, the longest stretch from February 2016 to February 2018.


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