BofA says we are 'one bad payroll away from cracking' Magnificent 7 dominance

Emerging markets (EM) equity funds saw their largest weekly inflow since February, and tech funds continued to attract positive flows, Bank of America (BofA) said in a new report.

According to EPFR Global data, equity funds experienced $22.2 billion in inflows for the week ending July 24, with half of this amount directed towards emerging markets stock funds.

China stock funds saw an $8.3 billion inflow, the strongest since February, while Japan stock funds recorded their biggest weekly inflow in three months at $4.1 billion.

Tech stock funds continued to attract investors, with $2 billion of inflows, even as other sectors like energy, consumer, and financials saw outflows.

Specifically, energy funds saw a record outflow of $3.0 billion, consumer sector funds experienced their largest outflow in three months at $0.9 billion, and $0.8 billion left financials, marking the biggest outflow since February.

BofA notes that $42.3 billion was pulled from cash funds. Meanwhile, bond funds saw $16.1 billion in inflows, with high-yield bonds receiving $2.7 billion and investment-grade bonds $8.8 billion.

Moreover, $1.3 billion flowed into gold, marking the biggest two-week inflow since March 2022, and $1.2 billion was added to crypto assets.

BofA said bullish investors view the recent pullback in stocks as healthy, noting that key levels are holding and credit spreads remain “well-behaved.”

However, bearish investors argue that “we are one bad payroll away” from disrupting the dominance of mega-cap technology stocks, also known as the Magnificent 7.

Bears also view the steeper yield curve as “recessionary” and believe that bond vigilantes will prevent the Fed's cuts from being effective due to the rising US debt, strategists led by Michael Hartnett pointed out.