How do you deal with the risk of a stock market bubble? Buy crypto and China, says Investing.com’s BofA

According to data compiled by Bank of America, markets saw significant capital inflows into various asset classes last week.

Stocks gained $29.4 billion, bonds $10.3 billion, cryptocurrencies $1.1 billion and gold $0.3 billion. Meanwhile, $2.9 billion was withdrawn from cash reserves.

Cryptocurrencies recorded their largest eight-week cumulative inflow on record, totaling $13.5 billion. This represents 30% of the total $45 billion inflows into the asset class since 2019, according to BofA’s Michael Hartnett.

Bank loan funds also saw sustained interest, with inflows over the past eight weeks, including $1.5 billion in the last week alone, marking the largest four-week inflow since February 2022.

U.S. stocks attracted a sizable $36.1 billion, accounting for their largest four-week inflow on record at $141 billion. In comparison, there has been a stark contrast in capital movements between US markets and the rest of the world over the past seven weeks: the US has seen inflows of $176 billion, while the rest of the world has seen outflows of $176 billion recorded $19 billion.

The financial sector saw its largest four-week inflow since January 2022, with $8.0 billion last month. After five weeks of outflows, utilities finally recorded an inflow of $0.4 billion, the largest in 11 weeks.

Bank of America’s Bull & Bear indicator fell from 5.4 to 4.7, hitting an 11-month low. This decline, the largest weekly decline since March 2023, reflects outflows from equities and debt, narrow stock market breadth and increased cash holdings.

The decline in this indicator, which is a broad measure of global sentiment and positioning, from 7 to 5 over the past six weeks highlights a clear disconnect between bullish sentiment toward U.S. assets and bearish sentiment toward assets from the rest of the world.

Bank of America’s retail clients, which manage a record $3.9 trillion in assets, are currently 63.3% invested in stocks – a 30-month high – and 19.0% invested in bonds – a 27-month high. Monthly low.

These clients are on track to see the largest three-month equity outflow since the second quarter of 2023, while also increasing their bond holdings through Treasuries, marking the 10th-largest inflow in the last 12 years.

“We forecast contrarian outperformance of bonds, international equities and gold relative to the US exceptionalism consensus,” Hartnett wrote in a note.

He recommended a strategy that includes positioning for a U.S. economic boom and a global downturn in the first quarter, buying international stocks in the second quarter in anticipation of policy changes and easing financial conditions abroad, and investing in gold and commodities in 2025 possible inflation includes surprises.

Finally, the bank suggests long positions in cryptocurrencies and China as a hedge against possible “bubble” risks.