Fed Offered Best Case For Stocks: BofA By Investing.com

Investing.com — U.S. stocks posted the third-biggest inflows since 2024, with $33.8 billion moving into the asset class last week, Bank of America said in a report on Friday.

The US large-cap sector was the key driver, attracting $26.2 billion. In particular, value stocks saw the largest inflow since December 2023 at $4.2 billion, while small-cap stocks saw inflows of $3.9 billion. Growth stocks followed with inflows of $1.9 billion.

Globally, equity funds attracted $38.6 billion, marking strong momentum across regions. US stocks led the way, while Japan saw inflows of $1.4 billion.

Emerging markets continued their positive streak with $1.3 billion, extending their run to 16 weeks of inflows. On the other hand, European stocks posted a fourth straight week of outflows at $0.8 billion.

On the macroeconomic front, BofA strategists said Wall Street “loves ‘panic cuts’ when there’s no panic,” referring to the 50-basis-point interest rate cut the Federal Reserve announced this week.

Strategists said the Fed opted for more aggressive tapering as it “wants to lower real rates to prevent job cuts in the recessionary small business sector.”

They also argue that the Federal Reserve’s expected tapering, totaling 250 basis points, could fuel 15-20% earnings per share growth in 2025. BofA points out that “it doesn’t get much better than both for risk, so investors (are) forced to rush.”

If the Fed manages to successfully orchestrate a “soft landing” for the US economy, BofA sees international stocks and commodities as the “best plays.”

Premiums are more attractively priced and starting to outperform, strategists said. In addition, both international equities and commodities “benefit from thawing geopolitical tensions,” they added.

Meanwhile, the bond market saw inflows of $15.5 billion last week, making it 39 consecutive weeks of positive flows.