A recent survey from Bank of America shows that inflation and recession worries, followed by a banking crisis, led to billions of investor money flowing into cash in the first quarter of 2023. According to the survey, $508 billion flowed into the perceived safer haven of cash in the first three months of this year, marking the biggest quarterly inflow since the first quarter of 2020. Cash often refers to Treasury bills with a duration of six months or less.

Biggest Quarterly Inflow Since the Pandemic’s Outbreak

The Flow Show survey shows that the recent inflow of $508 billion is the biggest since the pandemic hit. This is because investors were reeling from the global outbreak of a deadly virus in 2020. The bank’s analysts said over the week to March 29, some $60.1 billion was converted to cash. Furthermore, over the past two weeks, more than $100 billion was converted to cash. For the week, $2.3 billion went to bonds and $500 million to gold, while $5.2 billion was yanked from equities. The fear of inflation and recession has led to investors seeking to put their money in safer havens such as cash, bonds, and gold.

Record High of Assets Held by Money-Market Funds

Recent data from Crane showed that assets held by money-market funds that invest in short-maturity debt securities with low credit risk last week soared to a record high of $5.4 billion. This signifies that investors are seeking out safe alternatives where their money can be parked as they wait for the stock market to stabilize.

Predictions for the Second Quarter

Bank of America’s chief investment strategist, Michael Hartnett, said in a statement that the “conventional wisdom” for the second quarter was that: “Fed cutting 160 basis points after May, so long Big Tech; recession a slam dunk, so short small caps and banks (…and sell commodities as China troughing not surging), and long gold as U.S. 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.” This suggests that investors would do well to buy into big tech and sell commodities, small caps, and banks.

Fallout from the Crisis that Collapsed Three U.S. Banks

The crisis that collapsed three U.S. banks and one overseas lender has continued to dent investor appetite for financials. Even though there is hope that the crisis could be abating, financials saw $600 million in outflows in the latest week, which is the most in 10 weeks. Technology stocksSponsored Product, meanwhile, are getting some safe-haven bids and riding hopes that the Federal Reserve will be done with interest rate hikes soon, and so saw a sixth straight week of inflows, the longest such streak since April 2022. Furthermore, consumer-themed equities saw the biggest inflow in eleven weeks of $700 million. Finally, inflows to emerging market equities have reached $37.4 billion year to date, around $152.3 billion annualized. If the inflows continue at this pace, it would be the biggest amount ever.

Bull and Bear Indicator Signal

Hartnett and the team hinted that dip-buying opportunities could be around the corner. Their Bull & Bear Indicator dropped to 2.3 from 3.0 in the latest week, pushing further into “contrarian buy” territory. A buy signal for riskier assets is triggered when the Bull & Bear Indicator drops under 2.0. Average three-month moves after nine “buy” signals since 2013 have seen bond yields rise 43% and global stocksSponsored Product go up by 7.6%.

Conclusion

Inflation and recession concerns continue to drive billions of investor money into cash, bonds, and gold. Bank of America’s predictions for the second quarter suggest that investors should put their money in big tech and sell commodities, small caps, and banks. Though the crisis that collapsed three U.S. banks and one overseas lender seems to be abating in some areas, financials experienced the most outflows in 10 weeks. Technology stocksSponsored Product, on the other hand, saw a sixth straight week of inflows, and consumer-themed equities experienced the biggest inflow in eleven weeks. Finally, inflows to emerging market equities have reached $37.4 billion year to date.