Buying Bonanza Culminates With Record Inflows Into Global Stocks

As Doug Kass writes this morning, "the market is overbought and statistically overvalued after experiencing the third-best month (in November), in percentage terms, in history." He correctly notes that speculation is now running amok (EV, SPACs, etc.) and sentiment is at an extreme - whether seen by the CNN Fear and Greed Index sentiment studies...

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... or, as we previously noted, the record high gross and net hedge fund exposure as well as other data. This is in marked contrast to September/October when many were fearful of the election and its consequence on equities.

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BofA CIO Michael Hartnett showed further evidence of the rampant stock mania citing the latest EPFR fund flow data which shows nothing short of a "buying bonanza", with flows in the latest week as follows: $17.5bn into equities, $6.4bn into bonds, $2.2bn out of gold, $2.9bn out of cash.

Extending the lookback period to the post-Pfizer announcement on Nov 9 shows a remarkable surge in bullish sentiment over the past three weeks as follows:

Record inflow to equities of $89.0bn (prior high was Jan'18 )

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Record inflow to EM debt & equity of $28.0bn (prior high was Jan'18)

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2nd largest inflow ever to value stocks of $7.6bn (all-time high was Dec'19)

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4th largest inflow ever to small-cap stocks of $9.9bn (in past 4 weeks, the all-time high was Jun'18 - Chart 5).

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As a reminder, Hartnett recently said that amid the unprecedented euphoria, he would be "selling the vaccine" expecting a near-term peak (something which Morgan Stanley agreed with, as Michael Wilson also expects a modest correction before year-end).

So far that has yet to materialize, even as the signs are clearly indicating that everything is extremely overbought:

  • BofA Bull & Bear Indicator: up from 4.5 to 4.7: "BofA Bull & Bear Indicator on the rise, likely accelerates coming weeks...stocks seeing record inflows, BofA FMS Cash Rule close to "sell signal" (FMS cash at low 4.1%), BofA Breadth Rule "sell-signal triggered Nov 11th."
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