In recent developments, Bank of America strategist Michael Hartnett has expressed concerns regarding investor sentiment in light of the Federal Reserve's hawkish pivot. According to a report from The Edge Malaysia, this shift has contributed to the S&P 500 being on track for its worst week in over three months. Prior to the Fed's meeting, US equity allocations had reached a record low in cash holdings, which triggered a sell signal among investors. Hartnett pointed out that the global equity breadth is dire, with the S&P 500 Equal Weighted Index down over 7% since late November, indicating a broad market weakness that could affect investor confidence moving forward [48430cad].
Despite these challenges, it is noteworthy that US equities have experienced record inflows in 2024, with the S&P 500 up 23%. This surge in equity investment contrasts sharply with the bond market, which saw a significant outflow of US$6 billion from bond funds, while global equity funds attracted nearly US$69 billion. This dynamic suggests that while some investors are becoming cautious, others are still optimistic about the stock market's potential for growth [48430cad].
Hartnett also highlighted the importance of the SPDR S&P Bank ETF, which must maintain levels near its 2022 highs to sustain investor sentiment, especially as the market approaches the inauguration of President-elect Donald Trump on January 20, 2025. The upcoming quarterly rebalance on December 23 will coincide with a massive US$6.5 trillion options expiration, adding further complexity to the current market landscape [48430cad].
As investors navigate this turbulent environment, it is crucial to remain informed about both macroeconomic indicators and individual market trends. The interplay between the Federal Reserve's policies and investor sentiment will likely continue to shape the market's trajectory in the coming weeks.