Bank of America strategists warned in a weekly research note that macroeconomic conditions are moving fast as the U.S. Federal Reserve tightens monetary policy to rein in surging inflation worsened and could push the U.S. economy into recession.
“The ‘inflation shock’ is worsening, the ‘interest rate shock’ is just getting started, and the ‘recession shock’ is on the horizon,” Bank of America chief investment strategist Michael Hartnett wrote in a note to clients, adding that in this scenario, Cash, volatility, commodities and cryptocurrencies are likely to outperform bonds and stocks.
The U.S. central bank hinted on Wednesday that it may start removing assets from its $9 trillion balance sheet at its early May meeting, and that it will shrink at nearly twice the pace of previous “quantitative tightening” periods, as inflation is at 40-year highs .
The vast majority of investors also expect the central bank to raise key interest rates by 50 basis points.
In a notable week of inflows, Bank of America said emerging market equity funds had their biggest inflows in 10 weeks at $5.3 billion in the week to Wednesday, while emerging market bond funds also attracted $2.2 billion , the best week since September.
European stocks saw outflows for the eighth straight week, at $1.6 billion, while U.S. stocks saw inflows for the second straight week, adding $1.5 billion in the week to Wednesday.
The analysis is based on EPFR data.
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