We have just had the biggest week of equity inflows ($24.6bn) since the US election and the second largest week of inflows to Wall Street ever ($17.0 vs historic $35.5 in December 2014), says Michael Hartnett, Chief Investment Strategist at BofA Merrill Lynch Global Research.
Moreover, the effect is not limited to the US. Hartnett points out that Europe and Emerging Markets have seen 12 and 13 straight weeks of equity inflows respectively ($1.1bn and $1.0), while Japan has experienced its first inflow in three weeks.
Hartnett warns, however, that we are at the beginning of a global synchronized monetary tightening for the second half of this year and points out that the BofAML Bull & Bear Indicator is close to giving a “sell” signal (7.2). He says to stay long risk assets until sentiment reaches the euphoric territory of 8.0 (see Chart). Thereafter, Hartnett thinks a “big top” or “big flash crash” is on the cards. A such, he says volatility is a buy for the second half of the year.