Bank of America’s strategy team advises investors to sell their stocks when the Federal Reserve lowers interest rates for the first time. This recommendation is based on the increased likelihood of a significant economic downturn in the United States.
In their latest weekly report, released on Friday, strategists highlighted the growing risk of a sharp economic downturn, especially when most people expect little or no downturn.
Analysts note the historical relationship between the ISM Manufacturing Index and employment data. They noted that the only long period in which the index indicated a contraction in the manufacturing sector while employment numbers remained positive was from 1984 to 1986.
As reported on Thursday, US manufacturing activity fell more sharply than in eight months, underscoring these concerns.
At the same time, the value of assets considered risky rose in anticipation of an expected interest rate cut by the Federal Reserve, with the S&P 500 index up 32% over the past nine months. This is in stark contrast to the average 2% increase recorded in the twelve periods before the Federal Reserve’s first rate cut since 1970, as reported by Bank of America.
EPFR Global data for the week ending July 31 shows robust investment in bond and equity funds, with bonds attracting $14.6 billion and stocks $8.9 billion.
Gold received investments of $0.8 billion, while funds holding cash withdrew $12.5 billion and cryptocurrency funds decreased by $0.4 billion.
Technology companies received the most investment over the six weeks, with $3.6 billion.
At the same time, funds dedicated to emerging market stocks received $4.5 billion, with Chinese stocks notably receiving $4.8 billion. Bonds considered to be of good credit quality drew $10.8 billion, while those with higher yields but higher risk saw inflows of $1.5 billion.
It’s important to note that these numbers do not include Thursday’s market activity, when the S&P 500 and Nasdaq 100 indexes fell 1.3% and 2.4%, respectively, amid growing concerns about the strength of the economy. American.
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