A “sell” signal may be approaching for global stocks, according to strategists at Bank of America Merrill Lynch, who at the end of last week published a chart showing inflows into equities, as well as stock prices, climbing towards levels that would trigger selling.
The chart shows that stocks enter ‘sell territory’ when five-week inflows into long-only equity funds are higher than 0.5% of assets under management.
‘Buy territory’ begins when outflows are bigger than 0.9% of assets under management (AUM).
Currently, the chart published by Bank of America Merrill Lynch shows inflows into stocks somewhere around 0.2% or 0.3% of AUM.
Last week was the third straight week of big inflows into equities, with $12.4 billion going into stocks, the strategists wrote in a note.
“Another $8-9 billion of inflows to long-only equity funds over the next two weeks would trigger a contrarian ‘sell’ signal,” the strategists, Michael Hartnett and Brian Leung, said.
Around $231 billion were allocated to stocks year-to-date, compared with “a mere $16 billion inflows to bond funds,” they noted.
Last week’s “crowded trades” were Europe and Japan, as well as high-yield and floating-rate debt, according to the strategists.
Europe saw 18 weeks of inflows in a row, with $2.3 billion going into European stocks last week. Japan saw eight straight weeks of inflows while emerging markets experienced the first outflows in four weeks, although modest.
There were “chunky” inflows into energy and consumer sectors and outflows from utilities and healthcare, the strategists said.