Summary: Investors are increasingly pulling money out of US equities and flocking into cash funds as renewed concerns about tariffs crimp economic growth. Bank of America Corp.'s Michael Hartnett noted that nearly $28 billion was redeemed from US stocks in the week through August 6, while money market funds attracted around $107 billion, the biggest inflows since January. The record-breaking rally in the S&P 500 Index stalled last week as data showed a slowdown in the US labor market and investors are also worried about corporate earnings due to President Donald Trump's new levies.
Renewed Concerns About Tariffs
Investors are growing increasingly concerned about the impact of tariffs on economic growth, leading them to pull money out of US equities and invest in cash funds. According to Bank of America Corp.'s Michael Hartnett, nearly $28 billion was redeemed from US stocks in the week through August 6, while money market funds attracted around $107 billion, the biggest inflows since January.
The renewed concerns about tariffs are largely driven by President Donald Trump's new levies that took hold on Thursday. The average tariff rate has now risen to 15.2%, well above 2.3% last year and the highest level since the World War II era. This increase in tariffs is likely to have a significant impact on corporate earnings, which are already showing signs of slowing down.
Record-Breaking Rally in S&P 500 Index
The record-breaking rally in the S&P 500 Index stalled last week as data showed a slowdown in the US labor market. The index had been experiencing a strong surge in recent months, but this momentum was halted due to the release of disappointing economic data. The slowdown in the labor market is likely to have a significant impact on corporate earnings and overall economic growth.
Investors Expecting Rate Cuts
Investors are now turning their attention to the Federal Reserve, with swaps markets pricing in about 100 basis points in rate cuts by mid-2026. This expectation of rate cuts is largely driven by the slowing down of the US labor market and the impact of tariffs on corporate earnings.
"Goldilocks" Outcome Expected
Bank of America Corp.'s Michael Hartnett said that a majority of the bank's clients are betting on a "Goldilocks" outcome, which implies an economy that's running neither too hot nor too cold. This outcome is expected to lead to lower rates and fuel a rally in equities.
Potential Equity Market Bubble Warned
Hartnett has warned of a potential equity market bubble in recent weeks. He noted that investors are increasingly betting on a "Goldilocks" outcome, which could lead to a significant increase in stock prices. However, this increase in stock prices may not be sustainable and could ultimately lead to a market correction.
Conclusion
Investors are increasingly concerned about the impact of tariffs on economic growth, leading them to pull money out of US equities and invest in cash funds. The record-breaking rally in the S&P 500 Index stalled last week due to disappointing economic data, while investors are now expecting rate cuts from the Federal Reserve. As a result, there is growing concern about the potential for an equity market bubble.
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