BAML: 'Bearish paralysis' has investors pouring money into safe assets at the highest rate since the collapse of Lehman Brothers

FILE PHOTO: A trader walks past a board showing the final trading numbers on the floor of the New York Stock Exchange shortly after the closing bell in New York, U.S., October 2, 2019.  REUTERS/Lucas Jackson


  • Investors are flowing into safe haven assets at the highest rate since the collapse of Lehman Brothers, signaling an increasingly bearish outlook on the economy.
  • That's according to Bank of America Merrill Lynch, which finds investors have shifted $322 billion into money-market funds over the last six months. That's the largest inflow since the second half of 2008.
  • The firm's strategist said in a note to clients on Friday that investors are experiencing "bearish paralysis" due to a slew of economic and geopolitical uncertainties.
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Wall Street investors are pouring money into safe haven investments at the highest rate since the collapse of Lehman brothers.

Money market funds have seen inflows of $322 billion over the last six months, according to an analysis from Bank of America Merrill Lynch. That's the largest figure since the second half of 2008.Advertisement

The chart below shows this dynamic in action:

BAML chart


According to BAML strategists led by Michael Hartnett, investors are experiencing "bearish paralysis" in the face of geopolitical uncertainties like the US-China trade war, Brexit, President Trump's impeachment investigation, and concerns of a global recession.

Over the last week investors continued to echo the same sentiment they've shown in their trades in the last six months. Bonds saw inflows of $11.1 billion, while $9.8 billion flowed out of equities, according to BAML.

Investors typically shift their capital into the relative-safety of bonds when they're concerned about the economy. BAML strategists said they're still "irrationally bullish" due to the bearish positioning, desperate liquidity easing, and "irrational contagion" from bond bubble to equities. Advertisement

"Greece auctioned negatively yielding T-bills, US auctioned record low-yielding (2.17%) 30-year government bonds this week…bond bubble delays global recession and encourages irrational contagion to stocks," the firm said in a note to clients on Friday.

In BAML's view, there's no reason why the the S&P 500 can't surpass 3,333 next year.

Read more: A strategist with JPMorgan's $1.7 trillion asset management business says trade and politics will keep investors in 'purgatory' for more than a year - but thinks these 4 strategies can help them break outAdvertisement