Bank of America: Investors are betting on a victory for Trump and a Fed rate cut
Investors are rushing into the US stock market as they expect the Fed to cut interest rates in September and Donald Trump to win the election, strategists at UBS say.
The team led by Michael Hartnett, which cited EPFR Global data, said that US equity funds took in about $45bn in the week through Wednesday, the fourth-largest inflow on record. Micro-cap funds took in $9.9bn, the second-largest, while large-cap funds took in $27.4bn.
The strategist said that traders had turned bullish ahead of the Fed’s first cut, adding that investors now expect a 100 per cent chance of a Fed rate cut in September and a 75 per cent chance of a Trump victory. The probability of a “soft landing” over the next 12 months was 68 per cent.
He said that risk premiums were rotating, rather than dissipating, and that he expected money to flow from the dollar to gold, and from large companies to small.
Hartnett also said that stocks could be sold after the Fed cut rates, calling it an opportunity to “buy the rumour, sell the fact”. His team also likes bonds, as he expects a “deflation, not inflation” over the next 12 months, contrary to market expectations.
This is because voters — especially younger ones — see living costs as one of their most important issues. “Voters want low inflation,” the strategists said.