The consensus view among economists and investors seems to be that economic growth will continue to slow in the second half of the year and that the Federal Reserve will continue raising interest rates.
You can count Bank of America strategists as part of that consensus. But first, have a look at investment flows.
In the week ended July 6, cash funds saw an inflow of $62.6 billion, some related to quarter-end, and bond funds saw an inflow of $2.4 billion, the largest in 14 weeks, according to BofA, citing data from EPFR.
Gold funds saw an outflow of $2.1 billion, the biggest since March 2021; and stock funds saw an outflow of $4.6 billion.
It’s hard to make much of one week’s activity. But bond prices rose in the week of June 27 amid concern about recession, so that could explain the inflow into bond funds.
A recession would also hurt stocks, and the deflation accompanying recession could hurt gold too. So that may explain the outflow for gold and stock funds.
Second-Half Forecast
“The simple truth remains that the second half of the year is most likely to be one of slowing growth and rising [interest] rates,” BofA strategists wrote in a commentary. The risk of a "credit shock remains high,” they said.
As for stocks, “bear markets end with a recession or an event that causes the Fed to reverse policy,” the strategists wrote. “We say the bear market is in summer hiatus,” with a range for the S&P 500 of 3,800 to 4,200. The S&P 500 closed July 8 at 3,899.
“The bear [market] ain't over and the Big Low has yet to be reached,” the strategists said.
On the commodities front, “nominal [or inflation-unadjusted] U.S. GDP remains very strong, far too strong to call end to commodity bull market,” the strategists said. Unless, of course, Russia decides to end hostilities in Ukraine.
The S&P GSCI commodity index has soared 24% year to date.
