‘Dash for cash continues’: $508 billion inflows to cash in Q1

By Senad Karaahmetovic

Bank of America analysts reflected on recent flows as investors continue to seek shelter in cash. As much as $508 billion went to cash in the first quarter, the largest quarterly inflow since the pandemic and 1Q20.

In the week to last Wednesday (March 22), the market saw $142.9B in inflows to cash. For a week to March 29, an additional $60.1B went to cash while $2.3B were inflows to bonds. On the other hand, outflows from equities were $5.2B.

“US nominal GDP up 35% from ‘20 Covid lows = fastest recovery since end of WW2/Marshall Plan in ‘49); Q1’23 US nominal GDP likely up 6%… why there’s no EPS recession; note inflation & growth ’20-‘22 aided & abetted by $5.2tn fiscal stimulus & $4.8tn Fed QE stimulus; note past 6 months US deficit up $700bn (war, infrastructure, Social Security) & past 4 weeks Fed balance sheet up $370bn,” analysts further noted in a memo to clients.

They also highlighted strong year-to-date (YTD) inflows to emerging markets (EM) equities – $37.4B. If they continue at this pace, the 2023 year would be the largest-ever year for EM equities in terms of a % of AUM.

As far as sectors are concerned, the Tech sector has continued to attract inflows for the 6th consecutive week, making it the longest streak in a year. The Consumer sector attracted the largest inflow in 11 weeks while investors continue to run away from Financials – the largest outflow in 10 weeks.

The analysts also believe a recession is now a “small dunk” scenario, which means small cap and banks are likely to attract more selling pressure.

“Fed cutting 160bps after May so long Big Tech, recession a slamdunk so short small cap & banks (and sell commodities as China troughing not surging), and long gold as US dollar in bear market; pain trade is recession once again delayed by stimulus, labor market doesn’t crack, inflation stays high, market reprices lower but cyclicals outperform,” analysts concluded.