Investors Pull $280 Billion from U.S. Equities Amid Tariff Fears

Investors withdrew nearly $280 billion from U.S. equities in the week ending August 6, according to a report by Bank of America. This outflow was driven by concerns over high tariffs potentially stifling economic growth, leading investors to seek the safety of cash. The shift in investment strategy was accompanied by a significant inflow of approximately $1,070 billion into money market funds, marking the largest such inflow since January.

Michael Hartnett, a strategist at Bank of America, noted that global equity outflows reached $417 billion, largely due to the "abnormal redemption outflow" from three British-registered funds on July 31. The S&P 500 index, which had been on a record-breaking run, stalled last week as data indicated a slowdown in the U.S. labor market. Additionally, the implementation of comprehensive new tariffs by U.S. President Donald Trump on Thursday raised concerns about corporate earnings prospects. The average tariff rate has surged to 15.2%, the highest level since World War II, compared to 2.3% last year.

The combination of tariffs and economic growth concerns has put a damper on the U.S. stock market's upward trajectory. Market focus has shifted to the Federal Reserve, with swap markets predicting around 100 basis points of rate cuts by the mid-2026. Hartnett observed that most of the bank's clients are hoping for a "Goldilocks" scenario, where the economy is neither too hot nor too cold. Investors anticipate that rate cuts will boost stock market performance.

Hartnett had accurately predicted at the beginning of the year that international equities would outperform U.S. equities. However, in recent weeks, he has warned of increasing risks of a stock market bubble as monetary policy and financial regulation are eased. The shift towards money market funds indicates a growing preference for liquidity and safety among investors, reflecting the heightened uncertainty in the market. The significant outflow from U.S. equities and the inflow into money market funds underscore the cautious sentiment prevailing among investors, who are seeking to protect their portfolios from potential downside risks.