In a note to clients on Thursday, Bank of America Merrill Lynch’s chief investment strategist Michael Hartnett is clear: “Out with the safe, in with the risk.”
According to BAML, here is what clients are doing with their money:
- Europe: $US5.8 billion has flowed into European stocks this week, with $US21.6 billion coming in over the last six weeks to show the 2nd-highest allocation to eurozone stocks on BAML’s record.
- High yield bonds: This was the 4th straight week of inflows to high yield bond funds, which is now the best performing sector this year and 1% from its all-time high.
- Safe assets are boring: there have been recent outflows from US stocks, Treasuries, precious metals, and utilities.
BAML notes that sentiment is improving but still bearish (which the firm argues is bullish for stocks), though central bank “benevolence” has caused risk assets to rally in February.
Watch out for March, BAML writes, as volatility will likely resurface as worries about the Fed hiking rates resurface.
So despite all the talk about Greece and its debt plan — and concerns on whether it will leave the EU or not — investors seem to be shrugging this off and trading on one big thing: the European Central Bank’s quantitative easing program.