JP Morgan: Fund Flows May Point to Higher Recession Risk
The investment bank compared recent equity outflows to 2008
JP Morgan suggests that retail investors and consumers are losing confidence in the U.S. economy. The bank cited the outflows of capital from the equity markets and the rush into bonds as a reason. In 2019, $683 billion has moved into bond funds. Meanwhile, stock funds have seen outflows of $177 billion. These figures come from the Investment Company Institute, EPFR, and Bloomberg.
JP Morgan Worries About Recession Fears
JP Morgan analysts, led by Nikolaos Panigirtzoglou, issued a warning on Friday.
“Retail investors’ behavior in the fund space this year has the hallmarks of late-cycle investing with growing outflows from equity funds and strong inflows into bond funds,” analysts wrote. “Diminishing consumer confidence would naturally raise further expectations of recession by both economists and markets given the key role the consumer is playing in gauging recession risks.”
During the third quarter, stock funds saw a departure of $74 billion.
“The last time we saw such strong outflows from equity funds was during 2008,” analysts wrote.
However, the report did state that the move from stocks to bonds could be tied to “rebalancing by retail investors” instead of broader economic fears.
Investors have faced a significant amount of fear in the market in 2019. The year started with a tantrum over the Fed’s plans to continue raising interest rates. However, rapid cuts and a trade dispute between China and the U.S. saw many investors head for the exits.
Other geopolitical tensions include the recent attack on Saudi Arabian oil fields, Argentina’s currency collapse, and weak economic growth in China. The negative interest rate environment in Europe and parts of Asia has seen a swell of government debt yielding “less than zero” returns.
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