BofA: 'It's Getting Frothy, Man!'

In the week ended October 30, investors poured another $US12.4 billion into global equity funds — with $US4 billion of the total going into long-only funds, according to the latest data from EPFR Global.

In a note to clients — titled “It’s Getting Frothy, Man!” — BofA Merrill Lynch chief investment strategist Michael Hartnett writes, “Another $US8-9 billion of inflows to long-only equity funds over next 2 weeks would trigger a contrarian ‘sell’ signal (Chart 2). Bullish investor flows dovetails with our Bull & Bear Index, which is on course to trigger a cautionary risk- off signal in mid-November.”

In a Wednesday note to clients, Hartnett warned about the Bull & Bear Index.

“A breach of the 8.0 level on our Bull & Bear Index would make us more negative short term,” wrote Hartnett. “Cash remains high, 4.4% in our October Fund Manager Survey, and needs to fall below 4.0% in the November survey to help trigger a tactical ‘sell signal’.”

Below is a complete breakdown of this week’s flows, via Hartnett.

Asset Class Flows

Equities: $12.4bn inflows ($4bn via LO funds)

Bonds: $3.7bn outflows (outflows in 12 out of past 14 weeks)

Precious metals: $0.4 outflows (7 straight weeks)

MMF: second straight week of inflows post debt-ceiling resolution

Equity Flows

Europe: 18 straight weeks of inflows ($2.3bn)

Japan: 8 straight weeks of inflows

US: $7.6bn inflows (majority via ETF’s — SPY, XLP, XLE, QQQ)

EM: modest outflows (first outflows in 4 weeks)

By sector, chunky inflows to Energy ($1.4bn) and Consumer ($1.2bn); outflows from Utilities and Healthcare

Fixed Income Flows

Largest outflows from IG bond funds in 18 weeks ($3.3bn) (caveat: outflows concentrated in one fund)

71 straight weeks of inflows to floating-rate debt

8th straight week of inflows to HY bond funds ($1.6bn)

8th straight week of redemptions from govt/tsy funds

5 straight weeks of outflows from EM debt funds

29 straight weeks of outflows from TIPS

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