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Stocks See Highest Outflows of 2022 as Investors Flee on Rate Fears

  • Investors pulled nearly $19 billion from stocks last week, the highest outflow in 2022 amid rising yields and Fed uncertainty.

  • Bank of America warned higher rates for longer could threaten to pop the market bubble in early 2024.

  • Outflows came as the Fed signaled rates may stay elevated, spurring a bond yield surge.

  • The 10-year Treasury yield hit its highest since 2007, while the 2-year touched 2006 highs.

  • BofA sees signs of a potential hard landing lining up for 2024, though no recession yet in its base case.

businessinsider.com
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The stock market has been riding high in 2023, but recent market trends and uncertainties about interest rates and inflation have led to a pullback in August, leaving investors unsure about the future direction of the market. It is advised to stick to a long-term investment plan and remain focused on investment objectives and risk tolerance.
Investors withdrew from U.S. equity funds for a sixth consecutive week due to concerns about global economic growth and a surge in U.S Treasury yields, while money market funds saw significant inflows.
Chinese stocks experienced the largest monthly outflow in a year, with foreign investors withdrawing $15.5 billion from emerging market portfolios in August, driven by concerns over China's economic growth.
China experienced its largest capital outflow since 2015, with $49 billion leaving the country, as economic concerns prompt investors to withdraw; of this, $29 billion was withdrawn from securities investments, including bonds. The outflow was compounded by a record-high $12 billion in mainland-listed stocks being dumped by foreign investors and a $16.8 billion deficit in direct investment, the largest since 2016. The decline in the capital account was exacerbated by the tourism season, with outbound travel negatively impacting the services sector, while inbound travel remained suppressed, causing a continued deficit in the services trade. Efforts by Beijing, such as reducing the foreign currency reserves held by banks, have aimed to support the yuan but have been unable to prevent a significant decline in the offshore yuan. Weak exports and the allure of US yields have also contributed to the yuan's decline, further complicating China's capital flight situation, as doubts about the country's ability to achieve its 5% GDP target for the year grow.
Investors are rapidly selling off equities due to concerns about higher interest rates and the potential for a recession in 2024, according to Bank of America strategists.
A majority of Wall Street investors are concerned about the stock market's gains in 2023 and believe that it could retreat further as the risk for a recession increases.
Bitcoin's rally towards $27,000 was halted by a drop in the U.S. stock market and rising interest rates, with 10-year Treasury yields surging to a 16-year high and oil prices reaching a new high, leading to concerns of stagflation and prompting CFOs to cut capital spending and operational costs.
The U.S. stock market had a relatively flat performance in the third quarter, with stocks falling 3.2% from where they started, while energy stocks had a strong rally and real estate stocks crumbled; the bond market experienced losses, and unless there is a sudden change in the outlook, it is on track for its third straight year of losses; value stocks outperformed growth stocks, and dividend strategies held up better than the broader market; the Fed maintained its higher-for-longer stance on interest rates, contributing to volatility in the bond market; and major cryptocurrencies, such as Bitcoin and Ethereum, ended the quarter down approximately 12%.
Summary: The stock market is down due to rising Treasury yields in the bond market, which is pulling investment dollars away from stocks, leading to concerns about the impact of higher interest rates on the economy and markets.
The Dow Jones Industrial Average and other indexes took a major hit in the stock market, with the Dow falling more than 500 points and the Nasdaq and S&P 500 also experiencing significant losses, as the cost of borrowing money increased and the yield on the Treasury 10-year bond reached a 16-year high.
Stocks plummeted as investors were spooked by the 10-year Treasury yield reaching its highest level since 2007, with markets concerned about a tight labor market and the possibility of rising yields continuing to put pressure on stocks.
Foreign portfolio investors (FPIs) withdrew a significant amount of money from Indian equities in September due to concerns of higher inflation and tighter monetary conditions, with the power and metals and mining sectors experiencing the highest outflows, while capital goods continued to attract inflows as investors remained positive about India's macroeconomic conditions in the medium to long term.