Narrowing the stock market can indicate a “market top”: BofA

London — The narrowing of the stock market, rising volatility, and the outlook for rate hikes are typical signs of market leaders, BofA said in a weekly report Thursday.

BofA analysts said that only five of the largest technology stocks in the United States accounted for 71% of US stocks, up about 20%, in terms of weekly flow note stock performance based on EPFR data. rice field.

The situation where a small group of stocks makes a profit and another group loses ground is often seen as an indicator that the rally is losing momentum.

Equal concerns about global equities, from the Global Index, which excluded the top 300 US growth stocks by just 1.6%, despite the record $ 1 trillion stock market inflow so far this year. There is a year-to-date return.

The volatility gauge also calls attention. Volatility gauges in the US and European stock markets have receded from the 2021 highs hit earlier this week, but are well above recent averages.

Also, major central banks led by the US Federal Reserve are expected to start raising interest rates next year, and traders are concerned about technology stocks. Their excellent performance this year is partly based on the view that interest rates remain close to record lows.

“Hiking, volatility and divergence are often the top markets,” said a strategist at BofA, a US investment bank led by Michael Hardt.

US Treasuries have seen the largest inflows since October 2020, while investment grade and high yield bond funds have seen large outflows. Cash funds had the largest weekly inflows of $ 27.1 billion, followed by equities of $ 9 billion.

This year’s short-term bonds and long-term equity trading are paying significant dividends. But as a sign that investors are closing some of these deals, BofA said private clients have reduced their equity positions over the past three weeks, driven by outflows from the growth and industrial sectors. ..

Cycut Chatterjee