Bank of America Clients Drain $2.3bil from U.S. Stocks

In a second consecutive week of outflows, Bank of America clients sold off around $2.3 billion in U.S. equities, reports an article in Financial Advisor. The withdrawals were from equities of all sizes, during a relatively quiet week in the stock market, and came mainly from institutional, retail, and hedge-fund clients.

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Though this year’s rally in the S&P 500 has buoyed many investors, there is still a great deal of uncertainty about how long the rebound will last. Traders, in particular, have lacked conviction recently, and the index posted several days in a row where the needle moved less than 0.6% in either direction. That’s the longest flatline since 2021, according to the article. Meanwhile, investors are on edge as first-quarter earnings reports start to roll in, expecting the biggest contraction since the early pandemic, according to Bloomberg data.

Bank of America clients also drained $451 million from the real estate sector last week, the biggest outflow in that sector since July 2021. But there were significant inflows in both communication services and consumer staples—the only two sectors to see money flow in instead of out, the article reports.

2022 was a disastrous year for the traditional 60% stocks and 40% bonds portfolio split, declining 16% as the Fed’s aggressive interest rate hikes battered both stocks and bonds. But the classic strategy has rebounded this year, according to an article in The Wall Street Journal. Building on a 5.3% gain in the fourth quarter of last year, the 60/40 portfolio has gained 5.9% so far this year. That’s given renewed confidence to investors who stuck with the investment strategy through the rough waters of last year.

The 60/40 strategy has traditionally produced stable returns, with an average of 9.3% a year for the last 35 years. That’s because the S&P 500 usually rebounds after steep drops and investors who buy the dip generally reap rich rewards. Bonds typically offset the pain of stock losses, including through the Dotcom burst, the global financial crisis, and the market panic at the start of the pandemic. But in 2022, Treasurys, high-rated corporate bonds, and mortgage-backed securities declined 13%—the worst year on record—alongside the S&P 500, which fell 18%. Investors nearing retirement were the worst off, as their portfolios weren’t given time to recover from the losses, the article contends.

Though 2023 has provided some respite for 60/40 followers, the market’s trajectory is still uncertain, so it’s impossible to know if the strategy will continue to work. Inflation is still high and last month’s banking crisis seems to be just a blip, which could force the Fed to raise rates again. Stocks are also still quite expensive. All of that uncertainty, along with the recent turmoil, is causing investors to lighten their stock allocation, the article reports. Goldman Sachs is predicting that households, which own nearly 40% of the whole U.S. equity market, will sell off $750 billion in equities this year, compared to buying $1.7 trillion in equities from the beginning of 2020 to mid-2022. And respondents to a survey last month from the American Association of Individual Investors indicated that they are increasing their bond exposure, reallocating their portfolios to 65% stocks, 15% in bonds, and 20% in cash.

But many strategists are firm adherents to the 60/40 strategy, believing it will work well into the next decade. Todd Schlanger at Vanguard highlighted lower stock valuations and appealing bond yields as to why the strategy is still “a bellwether,” predicting annualized 10-year median returns of 5.4% for a globally diversified 60/40 portfolio. “That strategy we believe is an enduring one,” he told The Journal.

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