In a regular weekly client note that analyzes last week’s client flows, Bank of America strategist Michael Hartnett noted that the US stocks in real-time are on course for the worst annual drop since 1974.

Hartnett pointed out that the inflation adjusted loss YTD stands at 18.1%, with the Nasdaq market capital loss of approximately $4 trillion since Nov 21st.

“Huge $1.1tn inflows to stocks since Jan’21 have average entry point of 4274 on S&P500…means “pain” & “exit” requires

The last week saw cash flows of $60 billion, the most since October 2013. You should also be aware of the following major flows:

“Largest 3-week equity outflow since Mar’20 ($31.6bn), largest outflow EM debt since Apr’20 ($4.0bn), largest inflow MBS since Nov’21 ($0.5bn), redemptions Europe stocks 11th week ($3.4bn), outflows financials for 5th week ($1.2bn), big inflows utilities ($0.7bn),” Hartnett added.

Net-net, the strategist noted that the sentiment on bonds and stocks is “just awful,” which is translating into stock outflows.

“Positioning says “pain trade” up, but we think won’t be big “up”, and would sell it; good news on EPS, war, China COVID, Fed finally hiking properly can aid sentiment near-term.”

Hartnett still thinks the 1973/74 analog is worthy as high inflation “means Fed must tighten until it breaks the economy or the market; until it does asset prices must reset lower.”

By Senad Karaahmetovic